How might a government or business attempt to reduce the natural rate of unemployment? Is it just supply side policies or does anyone have anything more sophisticated?


Recall the steady state level of unemployment is:


where: $q=$ job separation rate

$\space\space\space\space\space\space\space\space\space\space f=$ job finding rate

Thus, to try to lower the natural rate of unemployment would man to try to reduce the job separation rate $q$ and increase the job finding rate $f$.

Examples of methods for increasing the job finding rate are:

Government employment agencies: disseminate info about job openings to better match workers and jobs.

Public Job training programs: help workers displaced from declining industries get skills needed for jobs in growing industries.

An example which can be used to reduce job separation rate is:

Labor unions: Unions exercise monopoly power to secure higher wages, better working conditions etc. for their members.This in turn can help reduce the job separation rate by providing conditions which would be more suitable for for members employed to want to still hold onto their present jobs.

Hope this is helpful!!


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