The The Unemployment Rate is never zero, even in a booming economy. Economists sort unemployment by its cause, because different causes call for different responses.
Key idea
Frictional unemployment: people between jobs, searching for a good match. Structural unemployment: a mismatch between workers' skills or locations and the jobs available. Cyclical unemployment: job losses from a fall in spending across the economy in a recession. The natural rate of unemployment = frictional + structural; at "full employment," cyclical unemployment is zero.
Why it works
In a growing, changing economy, people quit to find better jobs, graduates look for their first job, and families move. Searching takes time, so some frictional unemployment is normal and even healthy: it means people are finding better matches. Industries also rise and fall, so some workers' skills stop matching what employers want. That structural unemployment can last longer and may need retraining. Neither goes away when the economy is strong. Only cyclical unemployment comes from too little total spending, which is why the natural rate is above zero.
A worked example
Worked example: Natural and cyclical unemployment
Frictional unemployment is 2% and structural unemployment is 2.5%. The actual unemployment rate is 7%. Find the natural rate and cyclical unemployment.
- Natural rate $= 2\% + 2.5\% = 4.5\%$.
- Cyclical $= 7\% - 4.5\% = 2.5\%$, the part caused by a weak economy.
Answer: Natural rate 4.5%; cyclical 2.5%
Common mistake
Thinking full employment means 0% unemployment, or calling a worker whose skills are no longer needed "cyclically" unemployed. Full employment means unemployment equals the natural rate. And if a recovery would not bring the job back, the unemployment is structural. Check: ask "would this job return if spending recovered?" Yes: cyclical. No: structural.
See it with real data: the U.S. unemployment rate on the Economic Data page. Notice how it jumps in each shaded recession (cyclical unemployment) but never reaches zero.