... the three types of unemployment, structural, frictional and cyclical, through the causes of each of these and the phenomenon of hysteresis. The overall trend of increase in unemployment since the fifties is primarily due to structural unemployment deriving from the vast changes in the labour market (as discussed in question 6 of Labour Market Studies Assignment 2). The fact that the unemployment rate in Australia is stubbornly stuck around 6% is best explained through the theory that unemployment has an equilibrium, or natural, rate (Friedman and Phelps, 1968). The natural rate is defined as the unemployment rate where there is neither excess demand nor supply in the overall labour market, and as the unemployment rate that will occur in the long run if the actual and expected rates of inflation are equal (McConnell, Brue and Macpherson, 2003). The NAIRU (Non-Accelerating Inflation Rate of Unemployment) is another term for the natural rate ...

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