Explain how government policies can reduce the natural rate of unemployment

The natural rate of unemployment is defined as the rate of unemployment that exists when the labour market is in equilibrium. In figure 1 we can see a graphical explanation of this concept; the lateral distance between the labour supply curve (people willing to work at the current wage) and the labour force curve (all people with the ability to work) at the current wage rate (w1). The government tries to reduce the natural rate of unemployment due to the negative effects that unemployment brings. These can include an increased burden on welfare, potential negative multipliers and a loss of income leading to a decline in living standards. The natural rate of unemployment is determined by a list of factors, and it is by influencing these factors that the government can aim to reduce the natural rate of unemployment. These factors include the availability of job information, the degree of labour mobility and market flexibility, the level of skills and education within the economy and the prevalence of hysteresis.
Government policies such as the provision of public information services (like job centres or job websites) can serve to increase the availability of job information, reducing frictional unemployment and therefore reducing the natural rate of unemployment. Labour mobility can be positively affected by not only building infrastructure to allow people to move/commute easier, but also by making it easier to transfer housing and schools when moving. The government can then increase market flexibility by liberalising the labour markets, making it easier for companies to hire/fire workers, as well as making it easier for individuals to become employed. Both of these policies serve to reduce the barriers to employment and hence reduce the natural rate of unemployment. Hysteresis is a rise in unemployment stemming from the deskilling/de-motivation of workers that have been unemployed for an extended period of time due to factors such as recession. Policy to reduce unemployment stemming from this is very similar to policy to improve education and skills. The public provision of retraining and adult education schemes to allow people who have become structurally unemployed to retrain and rejoin the workforce is a potential solution. This can be displayed graphically in figure 2 with the labour supply curve moving towards the labour force curve, leading to a smaller rate of natural unemployment.