(I)Changes in the age composition of the labor force will affect the natural rate of unemployment (for example,an increase in the relative number of youthful workers).
(II)Institutional changes such as an increase in the minimum wage may increase cyclical unemployment but will not affect the natural rate of unemployment.

Question

Quizplus · Accepted Answer

I is true as changes in age composition can affect the natural rate of unemployment. For example, an increase in the relative number of youthful workers may increase the natural rate of unemployment as young workers tend to have higher unemployment rates due to lack of experience and skills.
However, II is false. Institutional changes such as an increase in the minimum wage can also affect the natural rate of unemployment as it may increase the reservation wage of workers and lead to higher unemployment rates. Therefore, it is incorrect to say that it will not affect the natural rate of unemployment.

(I)Changes in the Age Composition of the Labor Force Will