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Structural Unemployment in Finland

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  • Pasi Holm
  • Elina Somervuori
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    Abstract

    Since the Finnish unemployment rate has rocketed to a very high level in the beginning of the 1990?s it is worth to study to what extent the unemployment rate prevailing today is due to cyclical or to structural reasons. In this paper we try to estimate two different indicators that represent the structural part of unemployment, the NAWRU and the NAIRU. The NAWRU (non-accelerating wage rate of unemployment) measures the structural unemployment simply by relating unemployment to wage inflation. The estimated NAWRU follows very closely the actual unemployment in Finland indicating that it is not the proper measure for the structural unemployment. The NAIRU (non-accelerating inflation rate of unemployment) in this paper is based on structural estimates of the price setting behaviour of firms and the wage setting behaviour of trade unions. The estimated NAIRU was at a low level up to the end of eighties. Since then both the actual unemployment rate and the NAIRU have rocketed. In the mid-nineties the NAIRU was about 12 percent (plus - minus 2 percentage points) while the actual unemployment rate was about 18 percent.

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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 136.

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    Date of creation: 01 Jan 1997
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    Handle: RePEc:fer:dpaper:136

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    Related research

    Keywords: Actual and structural unemployment;

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    References

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    1. Setterfield, M.A. & Gordon, D.V. & Osberg, L., 1990. "Searching For A Will O'The Wisp: An Empirical Study Of The Nairu In Canada," Department of Economics at Dalhousie University working papers archive 90-04, Dalhousie, Department of Economics.
    2. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
    3. Laurence M. Ball, 1997. "Disinflation and the NAIRU," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 167-194 National Bureau of Economic Research, Inc.
    4. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
    5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    6. Jørgen Elmeskov, 1993. "High and Persistent Unemployment: Assessment of the Problem and Its Causes," OECD Economics Department Working Papers 132, OECD Publishing.
    7. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
    8. Lafontaine, Francine & White, Kenneth J., 1986. "Obtaining any Wald statistic you want," Economics Letters, Elsevier, vol. 21(1), pages 35-40.
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    Cited by:
    1. Chiarini, Bruno & Piselli, Paolo, 2001. "Identification and dimension of the NAIRU," Economic Modelling, Elsevier, vol. 18(4), pages 585-611, December.

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