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Explaining European Unemployment: Testing the NAIRU Hypothesis and a Keynesian Approach

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  • Engelbert Stockhammer

Abstract

The aim of the paper is to compare the NAIRU hypothesis regarding �European unemployment and a Keynesian approach to the issue and to evaluate them econometrically. For the NAIRU explanation, wage push variables are key in explaining the rise of European unemployment, for a Keynesian approach it is capital accumulation that is key. The theories are tested using time series data for Germany, France, Italy, the UK and the USA, using the seemingly unrelated regression method (SUR). Unemployment benefits, union density and the tax wedge are used as wage push variables, and the growth of business capital stock as the accumulation variable. The NAIRU specification performs poorly, with only the tax wedge having a positive effect on unemployment as predicted and only unemployment benefits having a negative effect on employment growth. However the results are not robust to changes in the specification. The Keynesian approach is more successful, with capital accumulation being statistically significant in all countries and robust to changes in the specification. Moreover, it can be pooled across countries.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 18 (2004)
Issue (Month): 1 ()
Pages: 1-26

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Handle: RePEc:taf:irapec:v:18:y:2004:i:1:p:1-26

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Related research

Keywords: Unemployment; NAIRU; Keynesian theory; labor market flexibility; capital accumulation;

References

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  1. Arestis, Philip & Mariscal, Iris Biefang-Frisancho, 1998. "Capital shortages and asymmetries in UK unemployment," Structural Change and Economic Dynamics, Elsevier, vol. 9(2), pages 189-204, June.
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  4. Laurence Ball, 1996. "Disinflation and the NAIRU," NBER Working Papers 5520, National Bureau of Economic Research, Inc.
  5. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
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  8. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
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Citations

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Cited by:
  1. Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation – A Post-Kaleckian perspective on the US and Germany," MPRA Paper 18223, University Library of Munich, Germany.
  2. Engelbert Stockhammer & Simon Sturn, 2012. "The impact of monetary policy on unemployment hysteresis," Applied Economics, Taylor & Francis Journals, vol. 44(21), pages 2743-2756, July.
  3. Engelbert Stockhammer & Erik Klär, 2008. "Capital Accumulation, Labour Market Institutions, and Unemployment in the Medium Run," Discussion Papers of DIW Berlin 834, DIW Berlin, German Institute for Economic Research.
  4. Hein, Eckhard & Truger, Achim, 2004. "What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or macroeconomic mismanagement?," Darmstadt Discussion Papers in Economics 37280, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  5. Eckhard Hein & Achim Truger, 2005. "What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement?," Macroeconomics 0501007, EconWPA.
  6. Ines Perez-Soba Aguilar & Elena Marquez de la Cruz & Ana Rosa Martinez-Canete & Alfonso Palacio-Vera, 2006. "Capital Stock and Unemployment: Searching for the Missing Link," Economics Working Paper Archive wp_475, Levy Economics Institute.
  7. Vasiliki Bozani, 2011. "NAIRU, Unemployment and Post Keynesian Economics," Working Papers 1105, University of Crete, Department of Economics.

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