The role of supply-side policies in reducing the natural rate of unemployment
The natural rate of unemployment is the level of unemployment that persists even when the economy is healthy. Supply-side policies tackle its root causes by improving workers' skills and strengthening incentives to find jobs.
Formula
NRU = Frictional Unemployment + Structural Unemployment
Real World
Germany's Hartz IV labour market reforms (2003–05) cut benefits and expanded job-centre services, helping reduce Germany's structural unemployment rate from around 10% to below 5% over the following decade.
Exam Focus
Never confuse NRU reduction with cyclical unemployment — examiners reward students who specify which type of unemployment the policy targets.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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