Which factors are commonly cited as shifting the natural rate of unemployment?

• A. Wage rigidity, job search frictions, skill mismatches, and demographics.
• B. Monetary policy stance alone.
• C. Seasonal adjustments only.
• D. Global trade balance changes.

Answer: (A)

The main idea is that the long-run, or natural, rate of unemployment is determined by persistent features of the labor market rather than short‑term swings in demand. The factors that are commonly cited as shifting this rate are wage rigidity, job search frictions, skill mismatches, and demographics. Wage rigidity means wages don’t adjust quickly enough to clear vacancies, so some unemployment remains even when the economy is healthy. Job search frictions capture the time and effort it takes for workers to find suitable openings and for employers to find good matches; more frictions mean longer periods of unemployment and a higher natural rate. Skill mismatches happen when the available jobs require different skills than those workers possess or when training trails lag behind changing technologies, leaving vacancies unfilled and raising the natural rate. Demographics encompass the size and composition of the labor force—age structure, education levels, and participation rates—that affect how easily workers can be matched to jobs; shifts in demographics can raise or lower the natural rate depending on whether the pool of capable job seekers grows or tightens.

Monetary policy mainly influences unemployment in the short run by changing demand, not the underlying rate at which the labor market clears in the long run. Seasonal adjustments reflect predictable, time‑of‑year patterns, not structural features that shift the natural rate. Global trade balance changes can alter the economy’s composition over time, but the factors most commonly cited as shifting the natural rate are these labor‑market frictions and structural characteristics.