Tuesday, July 28, 2009
Natural Rate of Unemployment as a Moving Average
The unemployment rate varies from the natural as the economy moves from boom to bust. In this graph, I have plotted the unemployment rate as a 10-year moving average to show how the unemployment rate gravitates to a natural rate. The graph also shows that the natural rate seems to be declining. One reason for this decline is job matching. I watched my step daughter search for a job online in the comfort of her home. Job searching takes less effort.
In N. Gregory Mankiw's intermediate text, he assigns a problem where office space sits idle. It takes time for potential users of the space to find the space and adapt the space to their needs. In this problem, office space is unemployed. If the space could be posted online, searching would lower the cost and increase use.
Job matching services have lowered the cost of searching and might have lead to a lower NAIRU.