Wages in excess of their equilibrium level explain a. both structural unemployment and the natural rate of unemployment. b. structural unemployment but not the natural rate of unemployment. c. neither structural unemployment nor the natural rate of unemployment. d. the natural rate of unemployment but not structural unemployment.

The correct answer is: the natural rate of unemployment but not structural unemployment

Explanation:

Structural unemployment is a form of unemployment where, at a given wage, the quantity of labor supplied exceeds the quantity of labor demanded because there is a fundamental mismatch between the number of people who want to work and the number of available jobs.  It is generally considered to be one of the “permanent” types of unemployment, where improvement if possible, will only occur in the long run.

Structural unemployment is a longer-lasting form of unemployment caused by fundamental shifts in an economy and exacerbated by extraneous factors such as technology, competition, and government policy. The unemployed workers may lack the skills needed for the jobs, or they may not live in the part of the country or world where the jobs are available. Structural unemployment can last for decades and may need radical change to redress the situation.

There is no evidence that minimum wages over the equilibrium causes structural unemployment. The causes of structural unemployment are deeper and long-lasting than the effects of minimum wage policies.

Natural unemployment, is the minimum unemployment rate resulting from real, or voluntary, economic forces. Natural unemployment reflects the number of people that are unemployed due to the structure of the labor force such as those replaced by technology or those who lack certain skills to gain employment. The movement of labor in and out of employment, whether it's voluntary or not, represents natural unemployment.

Exogenous factors can cause an increase in the natural rate of unemployment; for example, a steep recession might increase the natural unemployment rate if workers lose the skills necessary to find full-time work. One hundred percent full employment is unattainable in an economy over the long run. True full employment is undesirable because a 0% long-run unemployment rate requires a completely inflexible labor market, where workers are unable to quit their current job or leave to find a better one. According to the general equilibrium model of economics, natural unemployment is equal to the level of unemployment of a labor market at perfect equilibrium. This is the difference between workers who want a job at the current wage rate and those who are willing and able to perform such work.

Under this definition of natural unemployment, it is possible for institutional factors, such as the minimum wage or high degrees of unionization, to increase the natural rate over the long run.

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