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The Lack of Wage Growth and the Falling NAIRU


  • David N.F. Bell
  • David G. Blanchflower


In this note, we argue that a considerable part of the explanation for the benign wage growth in the advanced world is the rise in underemployment. In the years after 2008 the unemployment rate understates labour market slack. Underemployment is more important than unemployment in explaining the weakness of wage growth in the UK. The Phillips curve in the UK has now to be rewritten into wage underemployment space. Underemployment now enters wage equations while the unemployment rate does not. There is every reason to believe that the NAIRU has fallen sharply since the Great Recession. In our view the NAIRU in the UK may well be nearer to 3 per cent, and even below it, than around 5 per cent, which other commentators including the MPC and the OBR believe.

Suggested Citation

  • David N.F. Bell & David G. Blanchflower, 2018. "The Lack of Wage Growth and the Falling NAIRU," National Institute Economic Review, National Institute of Economic and Social Research, vol. 245(1), pages 40-55, August.
  • Handle: RePEc:sae:niesru:v:245:y:2018:i:1:p:r40-r55

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    Cited by:

    1. Ramskogler, Paul, 2021. "Labour market hierarchies and the macro-economy – Do labour market dualities affect wage growth in Europe?," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 154-165.
    2. Bracha, Anat & Burke, Mary A., 2018. "Wage inflation and informal work," Economics Letters, Elsevier, vol. 171(C), pages 159-163.
    3. Bell, David N.F. & Blanchflower, David G., 2019. "The well-being of the overemployed and the underemployed and the rise in depression in the UK," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 180-196.
    4. David N. F. Bell & David G. Blanchflower, 2021. "Underemployment in the United States and Europe," ILR Review, Cornell University, ILR School, vol. 74(1), pages 56-94, January.
    5. Zimmermann, Klaus F., 2018. "Reflections on wage-setting," GLO Discussion Paper Series 230, Global Labor Organization (GLO).
    6. Rose Cunningham & Vikram Rai & Kristina Hess, 2019. "Exploring Wage Phillips Curves in Advanced Economies," Discussion Papers 2019-8, Bank of Canada.
    7. Guyonne Kalb & Jordy Meekes, 2019. "Wage Growth Distribution and Decline among Individuals: 2001-2017," RBA Annual Conference Papers acp2019-03, Reserve Bank of Australia, revised Jul 2019.
    8. Roberto Roson, 2022. "Underemployment in a Computable General Equilibrium Model," Working Papers 2022:17, Department of Economics, University of Venice "Ca' Foscari".
    9. Jean-Louis Combes & Pierre Lesuisse, 2021. "Inflation and Unemployment, new insights during the EMU accession," Working Papers hal-03216478, HAL.
    10. Kiss, Aron & Van Herck, Kristine, 2019. "Short-Term and Long-Term Determinants of Moderate Wage Growth in the EU," IZA Policy Papers 144, Institute of Labor Economics (IZA).
    11. James H. Stock & Mark W. Watson, 2020. "Slack and Cyclically Sensitive Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S2), pages 393-428, December.
    12. Joohun Han & Chanjin Chung, 2021. "Impact of Aging and Underemployment on Income Disparity between Agricultural and Non-Agricultural Households," Sustainability, MDPI, vol. 13(21), pages 1-15, October.

    More about this item


    unemployment; underemployment; wage inflation; hours;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation


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