According to neoclassical economics, the wage rate is determined by a process of labor-market clearing (in which workers and employers compete with each other, ensuring that labor supply equals labor demand). Why, then, do we almost always observe unemployment? Neoclassical theorists argue that observed unemployment reflects frictional, structural, or disguised effects that are consistent with labor market clearing. In other words, this “natural” level of unemployment is, in fact, full employment. It is fruitless, in this view, to try to reduce unemployment below this natural level. misguided attempts to do so only create inflation. Unions, minimum wages, and other “market-inhibiting” measures will tend to increase the natural rate of unemployment.