Natural Rate of
Like most accounts of economic change, this book has emphasized short‐ run movements in economic variables, in this case unemployment. Yet in our concern for explaining variations in the amount of joblessness from one year to the next, we risk the possibility of ignoring longer-term shifts in the magnitude of unemployment. There has, in fact, been a fairly considerable variation in "typical" or "normal" rates of unemployment over the twentieth century. In this chapter, we return to a longer time horizon to attempt to suggest reasons for these changes. Our conclusions are, frankly, rather more speculative than those developed earlier, but we think highly plausible and defensible.
To begin, let us examine what has happened to "average" unemployment rates over time. In figure 13.1, we present a moving average of unemployment rates, where the average consists of ten years (the year in question plus the previous nine years.) This is a measure of the typical unemployment rate encompassing a period that usually includes at least two full business cycles. The conspicuous exception is the Great Depression era, where extremely high unemployment rates persisted for an entire decade. Our account begins with 1907 because the average unemployment rate for earlier years was heavily influenced by nineteenth-century unemployment experiences not discussed in this volume.