Chapter 16 The natural rate of unemployment: Explanation and policy This chapter describes unemployment in the long run. It presents the time path of unemployment in the United States the United Kingdom and Europe. There is an upward trend for unemployment in the United States; but in Europe there has been an astonishing growth with unemployment rising in all but one of the last 15 years. This explains why the unemployment rates are so different for different groups of people in society. For example unemployment rates are typically higher for young people than for older people. They are also higher for the unskilled for blacks and for workers in certain industries. These differences are closely related to the different rates of turnover of the different groups. To explain unemployment three main types of model are constructed. The first of these is based on supply and demand and assumes that without government intervention these are in the long run equal. However even without wage regulation there may be excess supply of labor and involuntary unemployment may persist because of the wage setting behavior of monopsonistic firms or of monopolistic unions or because of bargaining between the two. Thus second set of models has wages set by firms and the third has wages set by unions.