The natural rate of unemployment (NRU) is the unemployment rate that exists in an economy when it is in long-term balance. At this level, there is neither an excess of job seekers nor an excess of job vacancies.

It is composed of two main types of unemployment:

• Frictional unemployment: The time people spend moving between jobs or looking for work after entering the labor market for the first time.
• Structural unemployment: The mismatch between the skills workers have and the skills employers need, often due to changes in technology, industry, or geography.

The NRU represents a state of full employment because it does not include cyclical unemployment, which is caused by fluctuations in the business cycle. In economic theory, specifically the long-run Phillips Curve, the natural rate is the point where inflation remains stable. Attempting to push unemployment below this rate typically leads to rising inflation.