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Wage Inflation and Structural Unemployment in Ireland

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  • Keeney, Mary J.

    (Central Bank and Financial Services Authority of Ireland)

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    Abstract

    In this paper we represent structural unemployment by relating observed unemployment to wage inflation. An estimated series for the non-accelerating wage rate of unemployment (NAWRU) shows that the unemployment gap between observed unemployment and the structural rate provides an intuitive account of prevailing aggregate demand conditions within the Irish economy over the period 1980 to 2005. This indicates that the estimated NAWRU series is a good measure of Irish structural unemployment over the period. The estimated NAWRU was at a high level throughout the 1980s and declined over time such that any excess labour slack was dissipated by the mid-1990s. Between 1994 and 2001, the observed unemployment rate was below the estimated NAWRU indicating that the substantial inflationary pressure on wages was justified for the period. Since then, the gap between the estimate of the structural rate and observed rates of unemployment was not that substantial and reflects a healthier situation vis-à-vis wage inflationary pressure. The situation may have been helped by significant inward migration and productivity increases becoming embedded in the Irish economy.

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    Bibliographic Info

    Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 7/RT/08.

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    Length: 32 pages
    Date of creation: Oct 2008
    Date of revision:
    Handle: RePEc:cbi:wpaper:7/rt/08

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    1. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
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