Natural Rate of Unemployment Calculator

The natural rate of unemployment calculator is here to help you quickly determine the baseline level of unemployment in any economy.

If you've ever wondered, "How do I find the natural rate of unemployment?" or wanted to understand the natural rate of unemployment formula, this tool has you covered. Plus, it can answer questions like "Is the natural rate of unemployment higher?" in certain economic conditions, giving you valuable insights fast!

If you're wondering how to calculate the natural rate of unemployment or maybe what the natural rate of unemployment is if you're new to the subject, don't worry. We'll cover everything in the article below!

The natural rate of unemployment is the level of unemployment that exists even when the economy is functioning well. It doesn't mean zero unemployment — there will always be some people in between jobs or whose skills don't match the current job market.

The concept of the natural rate of unemployment is important in terms of macroeconomics because it helps us understand the "normal" unemployment rate that isn't caused by economic downturns.

The natural rate of unemployment is calculated with these three variables:

• Number of frictionally unemployed — These are individuals who are temporarily out of work while transitioning between jobs or entering the workforce market for the first time. It's the natural movement in the job market.

• Number of structurally unemployed — This refers to people who are unemployed because their skills are no longer in demand.

• Total labor force — This is the total number of people who are employed or actively seeking employment. It's important to note that it doesn't include individuals who are not looking for work, like retirees or full-time students (and children, obviously 😅).

Exams are coming, and you're not allowed to use our awesome calculator during the test? Not to worry! We want to equip you with all the knowledge you need, whatever the reason may be. If you need (or want) to know what the formula looks like, here it is!

where:

• NRU — Natural rate of unemployment;
• NFU — Number of frictionally unemployed;
• NSU — Number of structurally unemployed; and
• TLF — Total labor force.

There’s a clear distinction between the unemployment rate and the natural rate of unemployment.

The unemployment rate takes into account all unemployed people, including those who lose their jobs during economic downturns (cyclical unemployment).

Meanwhile, the natural rate of unemployment only includes frictional and structural unemployment (which we covered in the previous section).

The natural rate of unemployment is often used by economists as a kind of baseline. It reflects the “normal” amount of unemployment that will always exist in an economy due to people moving between jobs or changes in industries.

• If the unemployment rate is higher than the natural rate, it might indicate that something isn’t going well with the economy.
• On the other hand, if it’s lower, the economy could be overheating, which might not be sustainable in the long run.

For instance, let’s say the natural rate of unemployment is 4%, but the current unemployment rate is 7%. This gap of 3% could be considered cyclical unemployment caused by economic issues like a recession. This would signal to policymakers that there’s a need to stimulate the economy to create more jobs and bring that rate down.

All clear? Great! Then let's do some math!

1. Number of frictionally unemployed — If you want to know how to calculate natural rate of unemployment, you need to know a few key numbers, and this is the first one to input. In this variable, enter the number of people temporarily out of work due to job transitions or entering the job market for the first time.

2. Number of structurally unemployed — Next, input the number of people whose unemployment is due to changes in industries or technologies that make their skills obsolete.

3. Total labor force — Finally, enter the total number of people in the workforce to provide all the data required by the natural rate of unemployment formula. This value should represent the total number of people in the workforce.

Once you’ve entered these figures, the calculator will automatically compute the natural rate of unemployment for you. Additionally, it will break down the frictional unemployment rate and the structural unemployment rate as percentages of the total labor force.

Have fun with your calculations!