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The natural rate of unemployment and the NAIRU

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  • Backhouse, Roger E.
  • Forder, James
  • Laskaridis, Christina

Abstract

The usages of the terms ‘natural rate of unemployment’ and 'NAIRU' (Non-Accelerating Inflation Rate of Unemployment) in English-language publications are considered and compared. It is argued that contrary to what has sometimes been suggested, there is no consistent difference in the economic theory underlying the two ideas. However, there is, to a significant extent, and particularly in the 1980s, a difference in the way the two terms were used: choice of language typically depended on the questions being addressed. That difference, in turn, arose substantially from the different macroeconomic experiences of the US and Europe. In the 1980s, faced with persistently high unemployment, European economists developed structural econometric models seeking to understand the determination of 'the NAIRU'. In later years, as economic circumstances changed, usage became more homogeneous and choices about it seem to have been much more a matter of personal taste or habit.

Suggested Citation

  • Backhouse, Roger E. & Forder, James & Laskaridis, Christina, 2023. "The natural rate of unemployment and the NAIRU," European Economic Review, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:eecrev:v:159:y:2023:i:c:s0014292123001915
    DOI: 10.1016/j.euroecorev.2023.104563
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    More about this item

    Keywords

    Natural rate of unemployment; Nonaccelerating inflation rate of unemployment; Inflation; History of macroeconomics; European macroeconomics;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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