Do changes in structural factors explain movements in the equilibrium rate of unemployment?
AbstractThis paper examines the role played by various structural economic changes in explaining movements in the equilibrium rate of unemployment. The theoretical framework developed by Layard, Nickell and Jackman (LNJ) is employed to explain changes in the equilibrium unemployment rate. In the LNJ framework, equilibrium unemployment is determined by the interaction of the price and wage-setting behaviour of firms and workers. The natural rate is a function of structural variables such as the replacement ratio and union power that affect the size of firms and workers mark-ups. A wide range of equations with different combinations of structural variables is examined. It proves extremely difficult to find robust coefficient estimates that are statistically significant and have the expected signs on structural variables, unless a trended variable such as the owner-occupied housing rate is included. However, it is likely that these variables are simply capturing the upward trend in actual unemployment over most of the sample period in response to exogenous shocks. These results are found to be robust over different sample periods and different equation specifications. Therefore the results indicate that it is not possible accurately to explain movements in the natural rate using this approach, supporting the findings of other recent studies that suggest focusing on alternative, less structural, methods for estimating the equilibrium unemployment rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 153.
Date of creation: Apr 2002
Date of revision:
Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Julio J. Rotemberg & Michael Woodford, 1999.
"The Cyclical Behavior of Prices and Costs,"
NBER Working Papers
6909, National Bureau of Economic Research, Inc.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Bover, Olympia & Muellbauer, John & Murphy, Anthony, 1989.
"Housing, Wages and UK Labour Markets,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 51(2), pages 97-136, March.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005.
"Unemployment: Macroeconomic Performance and the Labour Market,"
Oxford University Press, number 9780199279173, Octomber.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, Octomber.
- Manning, Alan, 1993.
"Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations,"
Royal Economic Society, vol. 103(416), pages 98-118, January.
- Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
- C Bean, 1992.
"European Unemployment: A Survey,"
CEP Discussion Papers
dp0071, Centre for Economic Performance, LSE.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Henley, Andrew, 1998. "Residential Mobility, Housing Equity and the Labour Market," Economic Journal, Royal Economic Society, vol. 108(447), pages 414-27, March.
- Carruth,a. & Hooker, N. & Oswald,A., 1997.
"Unemployment Equilibria and Input Prices: Theory and Evidence from the United States,"
22, Centre for Economic Performance & Institute of Economics.
- Alan A. Carruth & Mark A. Hooker & Andrew J. Oswald, 1998. "Unemployment Equilibria And Input Prices: Theory And Evidence From The United States," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 621-628, November.
- Carruth, A.A. & Hooker, M.A. & Oswald, A.J., 1998. "Unemployment Equilibria and Input Prices: Theory and Evidence from the United States," The Warwick Economics Research Paper Series (TWERPS) 496, University of Warwick, Department of Economics.
- Marco Manacorda & Barbara Petrongolo, 1996.
"Skill Mismatch and Unemployment in OECD Countries,"
CEP Discussion Papers
dp0307, Centre for Economic Performance, LSE.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Stephen P Millard, 2000. "The effects of increased labour market flexibility in the United Kingdom: theory and practice," Bank of England working papers 109, Bank of England.
- Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
- Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
- Henry, Brian & Nixon, James, 2000. "Unemployment Dynamics in the UK," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 224-47, January.
- Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
- Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen.
- Anindya Banerjee & Lynne Cockerell & Bill Russell, 2001.
"An I(2) analysis of inflation and the markup,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 16(3), pages 221-240.
- Banerjee, A. & Cockerell, L. & Russell, B., 1998. "An I(2) Analysis of Inflation and the Markup," Economics Series Working Papers 99203, University of Oxford, Department of Economics.
- Anindya Banerjee & Lynne Cockerell & Bill Russell, 2000. "An I(2) Analysis of Inflation and the Markup," Dundee Discussion Papers in Economics 120, Economic Studies, University of Dundee.
- Phelps, Edmund S & Zoega, Gylfi, 1998. "Natural-Rate Theory and OECD Unemployment," Economic Journal, Royal Economic Society, vol. 108(448), pages 782-801, May.
- Grayham E. Mizon & David F. Hendry, 1998. "Exogeneity, causality, and co-breaking in economic policy analysis of a small econometric model of money in the UK," Empirical Economics, Springer, vol. 23(3), pages 267-294.
- Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
- A Carruth & M Hooker & A Oswald, 1994. "Unemployment, Oil Prices and the Real Interest Rate: Evidence from Canada and the UK," CEP Discussion Papers dp0188, Centre for Economic Performance, LSE.
- Chris Melliss & A. E. Webb, 1997. "The United Kingdom NAIRU: Concepts, Measurement and Policy Implications," OECD Economics Department Working Papers 182, OECD Publishing.
- Richard Barwell, 2000. "Age structure and the UK unemployment rate," Bank of England working papers 124, Bank of England.
- Richard Jackman & Richard Layard & S Savouri, 1990. "Mismatch: A Framework for Thought," CEP Discussion Papers dp0001, Centre for Economic Performance, LSE.
- George L. Perry, 1970. "Changing Labor Markets and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 411-448.
- Rebecca L Driver & Jennifer V Greenslade & Richard G Pierse, 2003. "The role of expectations in estimates of the NAIRU in the United States and the United Kingdom," Bank of England working papers 180, Bank of England.
- Charles St-Arnaud, 2004. "Une approche éclectique d'estimation du PIB potentiel pour le Royaume-Uni," Working Papers 04-46, Bank of Canada.
- Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa: Eine Bestandsaufnahme," University of Regensburg Working Papers in Business, Economics and Management Information Systems 389, University of Regensburg, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.