Question 25 Which of the following will most likely reduce the natural rate of unemployment? (1) an increase in unemployment benefits (2) an increase in the proportion of prime-age workers \( (35-54) \) as a share of the labor (3) an increase in the labor force participation rate of teenagers (4) an increase in the minimum wage

The **natural rate of unemployment** consists of **frictional** and **structural** unemployment and represents the level of unemployment expected in a healthy economy. It is not influenced by cyclical factors like economic downturns or booms. Let's analyze each option: 1. **An increase in unemployment benefits**: - **Effect**: Typically **increases** the natural rate by potentially prolonging the duration of unemployment spells (frictional unemployment). 2. **An increase in the proportion of prime-age workers (35-54) as a share of the labor force**: - **Effect**: Prime-age workers generally have **lower unemployment rates** compared to younger or older workers. Increasing their proportion can **lower** the overall natural rate of unemployment. 3. **An increase in the labor force participation rate of teenagers**: - **Effect**: Teenagers often have **higher unemployment rates** due to their limited experience. Increasing their participation could **raise** the natural rate. 4. **An increase in the minimum wage**: - **Effect**: May lead to **higher unemployment** among low-skilled workers if employers reduce hiring due to higher labor costs, thus potentially **increasing** the natural rate. **Conclusion**: Among the options provided, **option (2)** is most likely to **reduce the natural rate of unemployment**. **Answer:** Option 2. An increase in the proportion of prime-age workers (35–54) as a share of the labor