Explain what is meant by the term 'natural rate of unemployment'. Consider which types of unemployment would cause this rate to rise.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. Responses should relate the natural rate unemployment to a situation where there is no excess or deficiency of demand for labour. It is also known as the equilibrium rate of unemployment and is caused primarily by frictions in the labour market. Types of unemployment which are likely to cause this rate to rise would include: structural; technological; frictional and seasonal.
2. L4 (9-12 marks): for an answer that clearly explains the links between different types of unemployment and frictions in the labour market and makes some attempt to decide which of these types of unemployment might have the most significant impact on the natural rate of unemployment.
3. L3 (7-8 marks): for an answer that attempts to analyse the relationship between equilibrium/disequilibrium unemployment and types of unemployment which can be used to explain the distinction between equilibrium and disequilibrium situations. Some reference to frictions in the labour market should also be referred to.
4. L2 (5-6 marks): for an answer that provides a superficial definition which is not developed and makes no attempt to incorporate inflationary expectations or does not refer to equilibrium unemployment.
5. L1 (1-4 marks): for an answer that has some basic correct facts but includes irrelevancies and errors of theory.
6. A clear distinction between the role of market forces which would rely heavily upon the price mechanism to ensure that all those who want to work at the current wage rate and are willing and able to take a job and direct government intervention to achieve the same outcome. Would expect answers to recognise, with examples, how government policies could incorporate market forces as well as direct intervention. The focus should be upon how both occupational and geographical mobility can be increased to reduce frictions in the labour market. A comparison of alternative approaches should be evident throughout.
7. L4 (9-13 marks): for an answer that focuses upon comparing alternative approaches and which makes an attempt to evaluate the relative success of each type of policy. Strengths and weaknesses should be identified and used to draw a conclusion as to which approach might be the most effective.
8. L3 (7-8 marks): for an answer that attempts to analyse the links between alternative policy approaches and successful outcomes. A clear distinction between the role of market forces and the role of government intervention should be established. At least two policies in each case should be provided and compared.
9. L2 (5-6 marks): for an answer that provides an outline of both approaches but with an unclear comparison and which only considers a very limited range of policy options.
10. L1 (1-4 marks): for an answer that has some basic correct facts but includes irrelevancies and errors of theory.