Non-Accelerating Inflation Rate Of Unemployment - NAIRU

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DEFINITION of 'Non-Accelerating Inflation Rate Of Unemployment - NAIRU'

The specific level of unemployment that exists in an economy that does not cause inflation to increase. The non-accelerating rate of unemployment (NAIRU) often represents an equilibrium between the state of the economy and the labor market.

NAIRU is also sometimes referred as a "long-run Phillips curve".

BREAKING DOWN 'Non-Accelerating Inflation Rate Of Unemployment - NAIRU'

For example, suppose that the unemployment rate is at 5% and the inflation rate is 2%. Assuming that both of these values remain the same for a period of years, it can be said that when unemployment is under 5%, it is natural for an inflation rate of 2% to correspond with it.

Critics cite that it is unlikely to have a static rate of unemployment that will last for long periods of time, because different levels of factors affecting the workforce and employers (such as the presence of unions and monopolies) can quickly shift this equilibrium.

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