mployment that results from the normal working of the economy. Figures for the natural rate have been estimated between 4% and 7%, but most labor market specialists believe that it falls in the narrower band from 5% to 6%. Over time, estimates of the natural rate of unemployment have risen, a result of evolving economies and political considerations. If the natural rate of unemployment is a "normal" occurrence, it can be seen as acceptable; no further action on the part of policymakers may be necessary. Thus, incumbent politicians may benefit from higher estimates of the natural rate in election years. The imprecise nature of the natural rate of unemployment leaves it open to manipulation. Economic theorists differ markedly in their faith - or disbelief - in the natural rate of unemployment.
Closely related to the concept of a natural rate of employment is consideration of underemployment; that is, when the productive capacities of a worker are not fully used. Underemployment takes on significance when policymakers attempt to address the health of the economy in an environment of political decision-making. Underemployment generally refers to "part-time" employment of what had previously been a full-time worker. The underemployed in a region suffering from structural and cyclical unemployment are usually in the "part-time" workforce - and earning considerably less than their normal full-time employment would have provided. Thus, statistically, those workers could also be considered "unemployed" as well. When government relies on unemployment figures to plan fiscal policy, the measure of unemployment rates vis-a-vis underemployment can be an important consideration.
Fiscal policy and the natural rate of unemployment are, in fact, two of the major fault lines between Keynesian economists and Monetarists. Keynesians argue that the goal should be a "full-employment equilibrium" - and that the tool for achieving this s...