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Supply Constraints on Employment and Output: NAIRU Versus Natural Rate

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Abstract

NAIRU and NATURAL RATE are not synonymous. NAIRU is a macro outcome of an economy with many labor markets in diverse states of excess demand and excess supply. NAIRU represents an overall balance between the inflation-increasing pressures from excess-demand markets and the inflation-decreasing pressures from excess-supply markets. The natural rate, as described by Friedman, is a feature of Walrasian market-clearing general equilibrium. While the NAIRU fits into a Keynesian model, the natural rate is an aspect of a New Classical model. The determinants of the two are theoretically different, and so are their implications for policy. The NAIRU varies from time to time as the relationships between unemployment, vacancies, and wage changes vary, and as the dispersion of excess demands and supplies across markets changes. In this decade, these developments appear to be reducing the NAIRU, in contrast to the unfavorable circumstances of the 1970s.

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  • James Tobin, 1997. "Supply Constraints on Employment and Output: NAIRU Versus Natural Rate," Cowles Foundation Discussion Papers 1150, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1150
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    1. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
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    3. Martin Neil Baily & James Tobin, 1977. "Macroeconomic Effects of Selective Public Employment and Wage Subsidies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 511-544.
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    1. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "The (Ir)Relevance Of The Nru For Policy Making: The Case Of Denmark," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 369-392, July.
    2. Vít Pošta, 2015. "Semi-structural estimates of time-varying NAIRU based on the new Keynesian Phillips curve: evidence from Eastern European economies," Empirical Economics, Springer, vol. 49(4), pages 1217-1243, December.
    3. Emilie Jašová & Klára Čermáková & Božena Kadeřábková & Pavel Procházka, 2016. "Působení institucionálních faktorů na strukturální a cyklickou nezaměstnanost v zemích Visegrádské skupiny [Influence of Institutional Factors on Structural and Cyclical Unemployment in the Countries of the Visegrad Group]," Politická ekonomie, Prague University of Economics and Business, vol. 2016(1), pages 34-50.
    4. Emilie Ja?ová, 2016. "The effect of the psychological factor among companies onto the NAIRU and economic cycle on the labour market," Proceedings of International Academic Conferences 5307026, International Institute of Social and Economic Sciences.
    5. Cuéllar Martín, Jaime & Martín-Román, Ángel L. & Moral, Alfonso, 2017. "A composed error model decomposition and spatial analysis of local unemployment," MPRA Paper 79783, University Library of Munich, Germany.
    6. Bozena Kaderabkova & Emilie Jasova & Robert Holman, 2020. "Analysis of substitution changes in the Phillips curve in V4 countries over the course of economic cycles," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 9(2), pages 39-54, December.
    7. Salvatore D'Acunto & Sergio Destefanis & Marco Musella, 2004. "Exports, Supply Constraints and Growth: An Investigation using Regional Data," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 167-189.
    8. Ángel L. Martín‐Román & Jaime Cuéllar‐Martín & Alfonso Moral, 2023. "Natural and cyclical unemployment: A stochastic frontier decomposition and economic policy implications," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 5-39, January.
    9. Emilie Jasova, 2014. "A Model for Estimation of NAIRU Extended by Demand Shocks and its Application to Business Cycle Analysis in the Labour Market in Hungary and Poland," Proceedings of Economics and Finance Conferences 0401788, International Institute of Social and Economic Sciences.
    10. Klára ?ermáková & Emilie Ja?ová, 2019. "Analysis of the Negative and Positive Impact of Institutional Factors on Unemployment in Visegrad Countries," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 8(1), pages 20-34, June.
    11. Bo?ena Kade?ábková & Emilie Ja?ová, 2021. "How the Czech government got the pandemic wrong," Proceedings of Economics and Finance Conferences 12513377, International Institute of Social and Economic Sciences.
    12. Bo?ena Kade?ábková & Emilie Ja?ová, 0000. "Phillips curve during the economic cycle in the Czech Republic and Poland in the years 2000 to 2016," Proceedings of Economics and Finance Conferences 11413218, International Institute of Social and Economic Sciences.
    13. Emilie Jašová & Božena Kadeřábková, 2019. "Analýza vlivu slaďování rodinného a pracovního života žen prizmatem míry nezaměstnanosti neakcelerující inflaci v české republice [Analysis of Effects of Reconciliation of Family and Work Life of Women Through the Prism of Non-accelerating Inflati," Politická ekonomie, Prague University of Economics and Business, vol. 2019(3), pages 316-332.
    14. Bozena Kaderabkova, 2016. "Development of the economic cycle on labour market in the national economy and industry of the Czech Republi," Proceedings of Business and Management Conferences 4407037, International Institute of Social and Economic Sciences.
    15. Druant, Martine & Vanhala, Juuso & Ktoris, Michalis & Jarvis, Valerie & Bouchet, Muriel & Budnik, Katarzyna & Childs, Claire & Kuttner, Nicole & Spooner, Magdalena & De Mulder, Jan & Bonthuis, Boele &, 2012. "Euro area labour markets and the crisis," Occasional Paper Series 138, European Central Bank.
    16. Alasdair Scott, 2000. "Stylised facts from output gap measures," Reserve Bank of New Zealand Discussion Paper Series DP2000/07, Reserve Bank of New Zealand.
    17. Božena Kadeřábková & Emilie Jašová, 2011. "Analýza ukazatele NAIRU na sektorové úrovni [Analysis of the Indicator NAIRU on the Sector Level]," Politická ekonomie, Prague University of Economics and Business, vol. 2011(4), pages 508-525.
    18. Emilie Jašová & Božena Kaderábková, 2012. "Comparing NAIRU and Economic Cycle from the Perspective of Labour Market in the Countries of the Visegrad Group," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 3-23.
    19. Matthieu Lemoine & Gian Luigi Mazzi & Paola Monperrus-Veroni & Frédéric Reynes, 2010. "A new production function estimate of the euro area output gap This paper is based on a report for Eurostat: 'Real time estimation of potential output, output gap, NAIRU and Phillips curve for Euro-zone', part of the Advanced statistical and economet," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(1-2), pages 29-53.
    20. Grant, Alan P., 2002. "Time-varying estimates of the natural rate of unemployment: a revisitation of Okun's law," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 95-113.
    21. Task Force of the Monetary Policy Committee of the European System of Central Banks, 2012. "Euro area labour markets and the crisis," Occasional Paper Series 138, European Central Bank.

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