Macroeconomic

Some measure of joblessness is inevitable when workers move freely among jobs, and employers expand and shrink their work forces as business ebbs and flows.

Before the recession of 2007-2009, many economists believed the nation's "natural" rate of unemployment was 5%. Three years into the recovery, the nonpartisan Congressional Budget Office says this rate has risen to 6%. A survey of economists by the Federal Reserve Bank of Philadelphia recently pegged the rate at 6%. And Fed officials say their forecast for "longer run" unemployment—a proxy for natural unemployment—is between 5.2% and 6%.

Why the rise? America's more than five million long-term unemployed, those jobless for 27 weeks or more, may struggle for years to find positions as their skills and attractiveness to employers erode. The recession also heightened a mismatch between employers' needs and job seekers' skills, which is considered a "structural," or longer-term, problem rather than a "cyclical" one. In addition, more-generous unemployment insurance means people can take longer to look for positions.

But the official unemployment rate, which clocked in for August at 8.1%, remains much higher than the "natural" rate of 6%. That suggests much of America's unemployment is a result of skimpy demand for goods and services—and workers—rather than structural changes that have led to more joblessness. The CBO estimates structural issues have raised the unemployment rate about one percentage point since the start of the recession in December 2007 and that most of the increase since then is from weak demand for workers.

There are different ways to measure the natural rate of unemployment. The CBO tracks the "nonaccelerating inflation rate of unemployment," or NAIRU—the rate below which employers have to pay more to attract qualified workers. Since 1949, one version of this rate, now at 5.4%, has remained between 5% and 6.3%. By contrast, San Francisco Fed researchers Justin Weidner and John C. Williams have analyzed four factors—the availability of jobs, perceptions of how hard it is to land a job, people quitting jobs and businesses reporting "hard to fill" vacancies. They say the natural unemployment rate is 6.7%, though much of that bump up is temporary.

Gauging the natural rate of unemployment isn't just an academic exercise. The extent to which America's unemployment is structural is important for Fed officials deciding whether to take more action to spur the economy. If the rise in America's unemployment rate isn't "natural," the Fed, which is mandated by Congress to maximize employment and preserve price stability, may feel justified taking more steps to push down long-term interest rates. That tends to spur spending and investment and—hopefully—hiring. But if today's 8.1% rate reflects fundamental changes in the labor market, more Fed action may not be very effective. Worse, it could fuel unwanted inflation.

The problem is pinpointing where normal unemployment ends and abnormal joblessness begins, since the natural rate can't be measured directly. Structural factors can offset one another. Some employers are loath to hire from the ranks of the long-term unemployed. The effect of such a structural change is somewhat countered by another—the aging of the U.S. population, which shrinks the labor force and tends to push down the unemployment rate. Officially, the unemployment rate is the share of the labor force working or seeking work.