9.3.4—Natural rate of unemployment

The natural rate of unemployment is the rate consistent with stable inflation and normal labour-market matching, usually including frictional and structural unemployment but excluding cyclical unemployment.

It can change when skills, benefits, search technology, demographics, regulation or the structure of industries changes. It is estimated rather than directly observed and can move over time.

Better matching technology may reduce frictional unemployment and lower the natural rate; a permanent decline in a region’s main industry may raise structural unemployment and the rate.

Natural does not mean inevitable or desirable, and it is not the same as a fixed unemployment target or zero inflation in every model.