PERSISTENT UNEMPLOYMENT The Rise and Downward Trend of the Natural Rate

The natural unemployment rate seems to have taken a wild ride. As late as 1970 the natural rate is thought to have been still low, perhaps 5.5 percent. Then unemployment rose in the mid-1970's, dipped, and rose again in the early 1980's. The impression formed that beneath this movement was a major rise of the natural rate--to about 6.5 percent at mid-decade in some estimates. Now the American unemployment rate has been back around its early-1970's level for two years without rising inflation. Many experts infer that the natural rate is likewise back to its early 1970's level. These developments raise tough questions. If the natural rate really is near its 1970 level again, was the earlier rise real? If so, were its causes transitory? Their effects transient? If not for the most part, why the recent fall of the natural rate? Why at the same time is unemployment within every education group still elevated?