What is the natural rate of unemployment? Can we have a 0% rate of unemployment?

In the labour market we have two components: the "demand of workers" by the firm and "the supply of workers" who are actually the workers themselves. How do frims demand for workers? They set the wage, they say "We are willing to hire some workers and give them £x amount of money". There will be a number of people willing to work at that wage: the market will reach an equilibrium. Let's look closely at "the supply of workers", also called labour force. The number of unemployed people divided by the labour force gives us the unemployment rate. One of the main ideas in economics is that there will always be a certain percentage of unemployed people, even when all the markets are in equilibrium and the economy is at the "full employment level". It is the so called natural rate of unemployment and it is because of statement like the previous one that economics is called "the dismal science". But why cannot the unemployment rate reach 0? Why can't everyone work if firms are producing and the economy is not in a recession? Well, there are other factors to take into account. First of all, it takes time to find a job. Think of a graduate student who just left the university. It takes time to apply and to find a suitable job that will satisfy him. And like this graduate job, so many other experienced people who wait until they find the perfect job for their lives. This is called frictional unemployment. On the other hand you have to take into account geographical factors like mobility. There are plenty of jobs in London (especially the low-wage ones: waiters, cleaners) and a lot of people willing to work in these sectors in many areas of the world (South America, Africa, East Asia). But it is hard for them to move to London and start a new life. This causes the structural unemployment.
In our societies, there will always be frictional and structural unemployment. Their sum is the natural rate of unemployment. Nowadays, economists believe is around 4-5% but the debate is still going on.

Answered by Filippo I. Economics tutor

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