Could someone kindly explain NAIRU. Having a really hard time understanding it. In the text it says, “This rate will determine when an economy will experience bottlenecks in the labor market and WAGE-PUSH INFLATIONARY pressures.” And then in the next example it says, “The NARU and NAIRU are the unemployment rates at which the inflation rate WILL NOT RISE because of a shortage of labor.”
Isn’t the second statement contradicting the first one?
Okay so the NAIRU/ NARU is a kind of threshold unemployment rate that on the face of it shows there’s still slack, (slack=if an employer wanted to hire there would be people to hire), but for a variety of reasons (for example people in the job market not having the requisite skill set) below this rate inflationary pressures arise. For example There are people looking for jobs but they don’t have the right skill set. Those that do they can demand higher wages though. At the NAIRU the inflation rate will not rise due to a labor shortage. Below the NAIRU the inflation rate will rise but still not due to a labor shortage, but due to other factors surrounding those looking for work.
thank you so much. read through economics 3 times but can’t understand NAIRU until now