Suppose that a country has two types of workers—young workers and older workers. Young workers ...

Initially, the natural rate of unemployment is 6 percent = [(.10 × 15%) + (.90 × 5%)].  Given the influx of young workers into the labor force as a result of the baby boom twenty years earlier, the country's natural rate of unemployment rises to 7 percent = [(.20 × 15%) + (.80 × 5%)] .  The calculations in this problem illustrate how demographic composition determines in part a country's natural rate of unemployment.  Even though the two scenarios reflected no change in underlying labor market conditions, a shift in the composition of the country's labor force toward younger, less experienced workers caused a significant increase in the natural rate.