Economists believe that the natural rate of unemployment changes over time, although they often have difficulty pinning down an exact estimate. Policymakers need to have an accurate assessment of the natural rate to avoid any unnecessary unemployment or prevent inflation from emerging. But how can we estimate changes in the natural rate?
One way to estimate the shifts in the natural rate of unemployment is to look at the relationships between job vacancies and unemployment. Normally, the higher the unemployment rate, the fewer job vacancies there will be. This relationship is known as the Beveridge curve. But if the labor market matches individuals with jobs more efficiently, resulting in a decline in the natural rate of unemployment for example, through the use of Internet searches or new technology there will be fewer job vacancies corresponding to any level of unemployment. Using a variety of vacancy measures, economist William Dickens found that shifts in the relationship between vacancies and unemployment allowed him to make new estimates of the natural rate. He found that the natural rate was approximately 5 percent in the mid 1960s, but then rose in the late 1960s and peaked near 7 percent in the late 1970s and early 1980s. The natural rate began to drift down in the late 1980s and through the 1990s, again reaching the 5 percent level in 2000. It has since remained at this level.