Explain the factors which might determine the natural rate of unemployment (15 Marks)

Labour mobility (Frictional)

Geographical immobility of labour

Certain areas are too expensive to live in thus pricing out workers from jobs in an area, especially if transport links are poor

Renders people unemployed as they look for work elsewhere but are restricted in places due to relative costs of living

Skills and Training (Structural)

In a time where society is developing rapidly as new industries are created regularly

People who have been trained specifically for one area have a certain skill-set that can be quickly out-dated

As old industries collapse, renders people structurally unemployed as their skillset does not match the demand from many industries

Replacement Ratio (Both)

Proportion of benefits received from being unemployed in comparison to the wage received from being employed

If this is too high then the replacement ratio causes more supply-side unemployment as the trade-off from income and leisure is diminished