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What We Know and Do Not Know About the Natural Rate of Unemployment

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  • Olivier Blanchard
  • Lawrence F. Katz

Abstract

Over the past three decades, a large amount of research has attempted to identify the determinants of the natural rate of unemployment. It is this body of work we assess in this paper. We reach two main conclusions. First, there has been considerable theoretical progress over the past 30 years. A framework has emerged. We present it, and show how it can be used to think for example about the relation between technological progrss and unemployment. Second, empirical knowledge lags behind. Economists do not have a good quantitative understanding of the determinants of the natural rate, either across time or across countries. We look at two issues, the relation of wages to unemployment, and the risk of European unemployment.

Suggested Citation

  • Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5822
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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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