What is defined as the natural rate of unemployment?

The natural rate of unemployment refers to the level of unemployment that exists when the economy is at full employment, meaning all available resources are being used efficiently. It is the rate of unemployment consistent with stable inflation, where the economy is neither in a recession nor overheated. This concept implies that some unemployment is natural and arises from factors such as job transitions, skill mismatches, and the time it takes for workers to find new jobs—often referred to as frictional unemployment.

In contrast, unemployment during economic recessions pertains to cyclical unemployment, which occurs due to a downturn in the economy. The overall unemployment rate in a country may include various types of unemployment, but it does not specifically indicate the level of unemployment associated with stable inflation. Seasonal unemployment results from predictable changes in demand for certain jobs during different times of the year, which is a distinct category and does not reflect the natural rate defined in the context of macroeconomic theory. Thus, the definition linking the natural rate of unemployment to stable inflation is the foundational understanding of this economic concept.