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Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment

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  • Henry, Brian
  • Karanassou, Marika
  • Snower, Dennis J

Abstract

This paper challenges what is the standard account of UK employment, namely that the major swings in unemployment over the past 25 years are due predominantly to movements in the underlying empirical natural rate of unemployment (NRU). Our analysis suggests that the UK NRU has remained reasonably stable through time and that the medium-run swings in unemployment are due, instead, to very prolonged after-effects of persistent (transitory but long-lasting) shocks. We argue that (i) past UK labour market shocks have prolonged after-effects on unemployment due to interactions among different lagged adjustment processes in the labour market; (ii) many of the important shocks that have hit the UK labour market over the past 25 years have been persistent; and (iii) the persistence of the shocks is complementary to the persistence of the lagged adjustment processes in generating movements of UK employment. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Henry, Brian & Karanassou, Marika & Snower, Dennis J, 2000. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.
    • Handle: RePEc:oup:oxecpp:v:52:y:2000:i:1:p:178-203
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    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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