Question

While government policy should be geared towards ensuring that any person looking for a job should be able to get one, a 0% unemployment rate in the economy is never feasible or attainable. Explain why.

Answer 1

When the rate of unemployment is 0%, it is basically the natural rate of unemployment. This cannot be 0 because natural rate of unemployment is composed of frictional unemployment and structural unemployment which are very much existing at full employment level.

Frictional unemployment is natural because workers are not likely to work for their entire life with the same company at the same salary or position. They look for better job and better salary which means that there are always vacancies. Companies also desire to hire efficient workers and so they take time to hire new workers. This delay in the job matching is natural and occurs even when there is full employment

The case is a similar with structural unemployment that result with structural changes in the economy. It there is no structural unemployment it means that either the economy is not upgrading the technology or the existing labour force is highly skilled to understand the new technology quickly. Then there are cases of minimum wage and other labour market fictions due to which there is always structural unemployment even at full employment level.

due to this reason natural rate of unemployment cannot be zero but it can be reduced.