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The equilibrium rate of unemployment : a theoretical discussion and an empirical evaluation for six OECD countries

Listed author(s):
  • Odile Chagny

    (Centre Etudes & Prospective)

  • Frédéric Reynès

    (Nederlandse Organisatie voor Toegepast Natuurwetenschappelijk Onderzoek)

  • Henri Sterdyniak

    (Observatoire français des conjonctures économiques)

This paper examines theoretically and empirically the controversial notion of “equilibrium rate of unemployment” (ERU) which opposes proponents of the Phillips curve to those of the WS/PS models. Theoretically, this paper shows that the specification of the wage equation has a significant influence on the ERU. It also shows that an “asymmetric” wage-price setting using a Phillips curve and a price equation in level allows a clear distinction between the medium run ERU and the long run ERU that can be seen as a reconciliation between WS/PS models and the Phillips curve. Moreover, this paper calculates ERU for 6 OECD countries (the United States, Germany, France, the United Kingdom, Spain and the Netherlands) for the period 1970-late 1990’s by using a structural approach. As there are little studies that test directly the impact of institutional variables in a Phillips curve, the first empirical objective is to test this effect. The results in this matter are not really conclusive. The second objective is to calculate medium run and long run ERU. The evolutions of the medium run ERU explain relatively well those of the actual unemployment rate until the late eighties. Its determinants are the slowdown of productivity growth, the 2 oil shocks, the increase of employer’s social contribution and the change in the inflation target of the monetary authorities. In the nineties, the actual unemployment lies clearly above its equilibrium level suggesting that a big part of the European unemployment is due to an excess supply.

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File URL: http://spire.sciencespo.fr/hdl:/2441/1905/resources/wp2002-04.pdf
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Paper provided by Sciences Po in its series Sciences Po publications with number n°2002-04.

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Date of creation: Apr 2002
Handle: RePEc:spo:wpmain:info:hdl:2441/1905
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  1. Belot, Michele & van Ours, Jan C., 2001. "Unemployment and Labor Market Institutions: An Empirical Analysis," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 403-418, December.
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  4. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
  5. William Brown & Sushil Wadhwani, 1990. "The Economic Effects of Industrial Relations Legislation Since 1979," National Institute Economic Review, National Institute of Economic and Social Research, vol. 131(1), pages 57-70, February.
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  8. Yannick L’Horty & Christophe Rault, 2003. "Les causes du chômage en France. Une ré-estimation du modèle ws-ps," Revue économique, Presses de Sciences-Po, vol. 54(2), pages 271-294.
  9. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
  10. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  11. Loïc Cadiou & Stéphanie Guichard & Mathilde Maurel, 1999. "La diversité des marchés du travail en Europe : Quelles conséquences pour l'Union Monétaire," Working Papers 1999-11, CEPII research center.
  12. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
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  16. repec:spo:wpecon:info:hdl:2441/5268 is not listed on IDEAS
  17. Henri Sterdyniak & Michèle Debonneuil, 1984. "La boucle prix-salaires dans l'inflation," Revue Économique, Programme National Persée, vol. 35(2), pages 267-312.
  18. Henri Sterdyniak & Hervé Le Bihan & Philippine Cour & Henri Delessy, 1997. "Le taux de chômage d'équilibre, anciennes et nouvelles approches," Revue de l'OFCE, Programme National Persée, vol. 60(1), pages 147-186.
  19. Assar Lindbeck, 1993. "Unemployment and Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121751, July.
  20. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, June.
  21. Silvia Fabiani & Alberto Locarno & Gian Paolo Oneto & Paolo Sestito, 1997. "NAIRU: Incomes Policy and Inflation," OECD Economics Department Working Papers 187, OECD Publishing.
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