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It is high time to ditch the NAIRU

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  • Servaas Storm
  • C. W. M. Naastepad
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    Abstract

    According 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 Info

    Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

    Volume (Year): 29 (2007)
    Issue (Month): 4 (July)
    Pages: 531-554

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    Handle: RePEc:mes:postke:v:29:y:2007:i:4:p:531-554

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    Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

    Related research

    Keywords: demand-led growth; endogenous technological progress; equilibrium unemployment; Kaldor-Verdoorn relation; NAIRU;

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    Cited by:
    1. Hiroaki SASAKI, 2009. "Cyclical Growth in a Goodwin-Kalecki-Marx Model," TERG Discussion Papers 246, Graduate School of Economics and Management, Tohoku University.
    2. Sasaki, Hiroaki, 2010. "Endogenous technological change, income distribution, and unemployment with inter-class conflict," Structural Change and Economic Dynamics, Elsevier, vol. 21(2), pages 123-134, May.
    3. Dionisio Ramirez & Gabriel Rodr¨ªguez, 2014. "Do Labor Reforms in Spain Have an Effect on the Equilibrium Unemployment Rate?," International Journal of Social Science Studies, Redfame publishing, vol. 2(1), pages 105-120, January.
    4. Sasaki, Hiroaki, 2012. "Is the long-run equilibrium wage-led or profit-led? A Kaleckian approach," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 231-244.

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