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Vicious and Virtuous Circles: The Political Economy of Unemployment

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  • Ruthira Naraidoo

    ()
    (Keele University, Centre for Economic Research and School of Economic and Management Studies)

  • Patrick Minford

    ()
    (Cardiff Business School, Aberconway Building, Cardiff University)

Abstract

We develop a theoretical nonlinear model of equilibrium unemployment and test its policy implications for a number of OECD countries. The theory here sees the natural rate and the associated equilibrium path of unemployment as endogenous, pushed by the interaction of shocks and the institutional structure of the economy; the channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate of unemployment react to shocks by demanding more or less social protection. The reduced form results from a dozen OECD economies give support to the model and further evidence is obtained by structural estimates for the UK.

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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2006/03.

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Length: 26 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:kee:kerpuk:2006/03

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

Related research

Keywords: Equilibrium unemployment; political economy; vicious and virtuous circles; bootstrapping;

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Cited by:
  1. Matthews, Kent & Minford, Patrick & Naraidoo, Ruthira, 2006. "Vicious and Virtuous Circles - The Political Economy of Unemployment in Interwar UK and USA," Cardiff Economics Working Papers E2006/25, Cardiff University, Cardiff Business School, Economics Section, revised Nov 2006.
  2. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo Group Munich.
  3. Yu-Fu Chen & Michael Funke, 2003. "Labour Demand in Germany: An Assessment of Non-Wage Labour Costs," CESifo Working Paper Series 952, CESifo Group Munich.
  4. Naveen Srinivasan & Pratik Mitra, 2014. "The European unemployment problem: its cause and cure," Empirical Economics, Springer, vol. 47(1), pages 57-73, August.

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