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It is high time to ditch the NAIRU

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  • Servaas Storm
  • C. Naastepad

Abstract

According to the mainstream theory of equilibrium unemployment, persistent unemployment is caused (mainly) by "excessive" labor market regulation, whereas aggregate demand, capital accumulation, and technological progress have no lasting effect on unemployment. We argue that the mainstream nonaccelerating inflation rate of unemployment (NAIRU) model is only a special case of a general model of equilibrium unemployment, in which aggregate demand, investment, and endogenous technological progress have long-term effects. It follows that the labor market policy prescriptions (i.e., to drastically deregulate), following from the standard NAIRU model, can by no means be generalized. Empirical support for the general model is provided by an econometric analysis for 20 Organization for Economic Cooperation and Development (OECD) countries (1984-97): demand factors are the overriding determinants of structural unemployment in the OECD.

Suggested Citation

  • Servaas Storm & C. Naastepad, 2007. "It is high time to ditch the NAIRU," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(4), pages 531-554.
  • Handle: RePEc:mes:postke:v:29:y:2007:i:4:p:531-554 DOI: 10.2753/PKE0160-3477290401
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    6. Herbert Gintis, 1997. "A Markov Model of Production, Trade, and Money: Theory and Artificial Life Simulation," Working Papers 97-01-006, Santa Fe Institute.
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    Cited by:

    1. Valerija Botric, 2012. "NAIRU estimates for Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 163-180.
    2. Eckhard Hein & Engelbert Stockhammer, 2010. "Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model," Review of Political Economy, Taylor & Francis Journals, pages 317-354.
    3. Sasaki, Hiroaki, 2010. "Endogenous technological change, income distribution, and unemployment with inter-class conflict," Structural Change and Economic Dynamics, Elsevier, vol. 21(2), pages 123-134, May.
    4. P Arestis & A Mihailov, 2009. "Flexible Rules cum Constrained Discretion: A New Consensus in Monetary Policy," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 27-54, September.
    5. Hiroaki Sasaki, 2013. "Cyclical growth in a Goodwin–Kalecki–Marx model," Journal of Economics, Springer, pages 145-171.
    6. Dionisio Ramirez & Gabriel Rodr¨ªguez, 2014. "Do Labor Reforms in Spain Have an Effect on the Equilibrium Unemployment Rate?," International Journal of Social Science Studies, Redfame publishing, pages 105-120.
    7. Sasaki, Hiroaki, 2012. "Is the long-run equilibrium wage-led or profit-led? A Kaleckian approach," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 231-244.
    8. Sasaki, Hiroaki, 2010. "Endogenous technological change, income distribution, and unemployment with inter-class conflict," Structural Change and Economic Dynamics, Elsevier, vol. 21(2), pages 123-134, May.
    9. repec:voj:journl:v:64:y:2017:i:2:p:139-168 is not listed on IDEAS

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