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What We Know and Do Not Know About the Natural Rate of Unemployment

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Author Info
Olivier Blanchard
Lawrence F. Katz

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Abstract

Over the past three decades, a large amount of research has attempted to identify the determinants of the natural rate of unemployment. It is this body of work we assess in this paper. We reach two main conclusions. First, there has been considerable theoretical progress over the past 30 years. A framework has emerged. We present it, and show how it can be used to think for example about the relation between technological progrss and unemployment. Second, empirical knowledge lags behind. Economists do not have a good quantitative understanding of the determinants of the natural rate, either across time or across countries. We look at two issues, the relation of wages to unemployment, and the risk of European unemployment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5822.

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Date of creation: Nov 1996
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Publication status: published as Journal of Economic Perspectives, 11, winter 1997, pp.51-72.
Handle: RePEc:nbr:nberwo:5822

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Find related papers by JEL classification:
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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  33. Abowd, John M & Lemieux, Thomas, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 983-1014, November. [Downloadable!] (restricted)
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  34. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October. [Downloadable!] (restricted)
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  35. Grubb, David B, 1986. "Topics in the OECD Phillips Curve," Economic Journal, Royal Economic Society, vol. 96(381), pages 55-79, March. [Downloadable!] (restricted)
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  38. Card, David, 1990. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," American Economic Review, American Economic Association, vol. 80(4), pages 669-88, September. [Downloadable!] (restricted)
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