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

  • Olivier Blanchard
  • Lawrence F. Katz

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5822.

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Date of creation: Nov 1996
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Publication status: published as Journal of Economic Perspectives, 11, winter 1997, pp.51-72.
Handle: RePEc:nbr:nberwo:5822
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