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High Unemployment in Europe: Diagnosis and Policy Implications

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Author Info
Jeffrey Sachs
Abstract

Econometric evidence suggests that the non-accelerating inflation rate of unemployment (the NAIRU) has risen sharply in Europe in the past fifteen years. In the first section of this paper, I review the recent proliferation of supply-side models that say interesting things about why the NAIRU hasincreased so substantially in Europe. In the second section of the paper, I employ a simple example to show how aggregate demand should optimally be managed in response to transitory and permanent supply shocks, especially those shocks that cause a persistent rise in the NAIRU. Also, I discuss some policy implications of the increasingly popular "hysteresis hypothesis, that the NAIRU itself is influenced by the time path of actual unemployment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1830.

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Date of creation: Feb 1986
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Handle: RePEc:nbr:nberwo:1830

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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.:
  1. George L. Perry, 1975. "Determinants of Wage Inflation Around the World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1975-2), pages 403-448. [Downloadable!]
  2. Symons, James S V, 1985. "Relative Prices and the Demand for Labour in British Manufacturing," Economica, London School of Economics and Political Science, vol. 52(205), pages 37-49, February. [Downloadable!] (restricted)
  3. Jeffrey D. Sachs, 1983. "Real Wages and Unemployment in the OECD Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1983-1), pages 255-304. [Downloadable!]
  4. Hargreaves Heap, S P, 1980. "Choosing the Wrong 'Natural' Rate: Accelerating Inflation or Decelerating Employment and Growth?," Economic Journal, Royal Economic Society, vol. 90(359), pages 611-20, September. [Downloadable!] (restricted)
  5. Grubb, Dennis & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39. [Downloadable!] (restricted)
  6. Jeffrey D. Sachs, 1979. "Wages, Profits, and Macroeconomic Adjustment: A Comparative Study," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1979-2), pages 269-332. [Downloadable!]
  7. Gene M. Grossman, 1984. "International Competition and the Unionized Sector," Canadian Journal of Economics, Canadian Economics Association, vol. 17(3), pages 541-56, August. [Downloadable!] (restricted)
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  8. Michael Bruno, 1985. "Aggregate Supply and Demand Factors in OECD Unemployment: An Update," NBER Working Papers 1696, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Grubb, David B & Jackman, Richard A & Layard, Richard G, 1982. "Causes of the Current Stagflation," Review of Economic Studies, Blackwell Publishing, vol. 49(5), pages 707-30, Special I. [Downloadable!] (restricted)
  10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)
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  1. Michael Burda, 1988. "Is there a capital shortage in Europe?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 124(1), pages 38-57, March. [Downloadable!] (restricted)
  2. Geoffrey M.B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33. [Downloadable!]
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