natural rate of unemployment

If the economy is supposedly doing well, why do we still hear of graduates without work and skilled people between contracts? That question is exactly what the natural rate of unemployment answers.

It is not the unemployment caused by a recession or a bank crisis. It is the unemployment that never fully disappears, even in the best of times, because people change jobs, new graduates search for their first role, and some workers simply do not have the skills that employers currently need.

Economists split this into two familiar characters. There is the young Lagos graduate who just finished NYSC and spends four months sending out applications before landing something suitable, which is frictional unemployment, a normal part of searching. Then there is the former newspaper typesetter whose skill became useless once printing presses went digital, which is structural unemployment, a mismatch between what workers can do and what the market now wants.

Add those two together and you get the natural rate. It is never zero, and that is fine. A country with 0% unemployment would actually be a strange, stuck economy where nobody ever changes jobs or upgrades their skills.

In the United Kingdom, economists watch this rate closely when setting interest rates, because if unemployment falls below the natural rate, wages tend to rise fast and inflation starts creeping up. In Nigeria, the consider is messier, since a large informal sector means many people who are technically underemployed, like a graduate hawking recharge cards while searching for office work, do not show up cleanly in official statistics.

For someone in the diaspora sending money home, this idea matters calmly in the background. It explains why a relative with a good degree can still take months to find steady work, and not since the whole economy is collapsing, but because some joblessness is simply the ordinary cost of a functioning labour market.