It is high time to ditch the NAIRU
AbstractAccording to the mainstream theory of equilibrium unemployment, persistent unemployment is caused (mainly) by "excessive" labor market regulation, whereas aggregate demand, capital accumulation, and technological progress have no lasting effect on unemployment. We argue that the mainstream nonaccelerating inflation rate of unemployment (NAIRU) model is only a special case of a general model of equilibrium unemployment, in which aggregate demand, investment, and endogenous technological progress have long-term effects. It follows that the labor market policy prescriptions (i.e., to drastically deregulate), following from the standard NAIRU model, can by no means be generalized. Empirical support for the general model is provided by an econometric analysis for 20 Organization for Economic Cooperation and Development (OECD) countries (1984-97): demand factors are the overriding determinants of structural unemployment in the OECD.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.
Volume (Year): 29 (2007)
Issue (Month): 4 (July)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348
demand-led growth; endogenous technological progress; equilibrium unemployment; Kaldor-Verdoorn relation; NAIRU;
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