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Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment

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Author Info

  • Snower, Dennis J.

    ()
    (Kiel Institute for the World Economy)

  • Karanassou, Marika

    ()
    (Queen Mary, University of London)

  • Henry, Brian

    ()
    (University of Oxford)

Abstract

This paper challenges what is the standard account of UK unemployment, namely that the major swings in unemployment over the past 25 years are due predominantly to movements in the underlying empirical "natural rate of unemployment" (NRU). Our analysis suggests that the British NRU has remained reasonable stable through time and that the medium-run swings in unemployment are due, instead, to very prolonged after-effects of persistent (transitory but long-lasting) shocks. We argue that (a) past UK labour market shocks have prolonged after-effects on unemployment due to interactions among different lagged adjustment processes in the labour market, (b) many of the important shocks that have hit the UK labour market over the past 25 years have been persistent, and (c) the persistence of the shocks is complementary to the persistence of the lagged adjustment processes in generating movements of UK unemployment.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 75.

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Length: 30 pages
Date of creation: Dec 1999
Date of revision:
Publication status: published in: Oxford Economic Papers, 52 (2000), 178-203
Handle: RePEc:iza:izadps:dp75

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Related research

Keywords: adjustment costs; Unemployment; natural rate hypothesis; labour markets; employment;

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