Changing Labor Force Composition and the Natural Rate of Unemployment
Abstract: This article discusses why changes in the composition of the labor force may have lowered the natural (or trend) rate of unemployment?the unemployment rate that would prevail in an economy making full use of its productive resources?to 5 percent or less. A lower natural rate may help explain why wage inflation and price inflation remain low despite actual unemployment recently reaching 5.5 percent?a figure only slightly above prominent estimates of the natural rate, such as that of the Congressional Budget Office (CBO). Demographic and other changes should continue to lower the natural rate for at least the remainder of the decade.
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Provider: Federal Reserve Bank of Chicago
Part of Series: Chicago Fed Letter
Publication Date: 2015Order Number: 338