The unemployment rate in the United States increased from 5% in December 2007 to 9.9% in December 2009

Question

Was this almost doubling of the unemployment rate due to cyclical, frictional, or structural reasons, and did the increase in unemployment change the natural rate of unemployment?

Answer 1

The increase in the unemployment rate from December 2007 to December 2009 was primarily due to the recession. This indicates that the rise in unemployment was mainly a result of an increase in cyclical unemployment. Frictional unemployment refers to short-term unemployment caused by searches by workers and firms for suitable matches of workers to jobs. This occurs naturally in an economy and most likely had no significant impact on the rise in the unemployment rate. Structural unemployment arises from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs. Some economists argue that structural unemployment may have risen during this time, because the recession may have altered the job market by permanently reducing certain kinds of jobs in certain markets. The natural rate of unemployment consists of frictional unemployment plus structural unemployment, so the potential increase in structural unemployment could have an impact, but it would most likely represent only a small upward change in the natural rate of unemployment.