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Explaining European Unemployment: Testing the NAIRU Theory and a Keynesian Approach

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  • Engelbert Stockhammer

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

The aim of the paper is to contrast and test the NAIRU theory and the Keynesian theory of unemployment econometrically. For the former, wage push variables are key in explaining the rise of European unemployment, for the latter accumulation is. The theories are tested using time series data for Germany, France, Italy, the UK and the USA, using the seemingly unrelated regression method (SUR). Unemployment benefits, union density and the tax wedge were used as wage push variables, and the growth of business capital stock as the accumulation variable. The NAIRU specification performed poorly, with only the tax wedge having a positive effect on unemployment as predicted. The Keynesian approach was more successful, with accumulation being statistically significant in all countries. Moreover, the tax wedge and accumulation are fairly robust to changes in the specification and can be pooled across countries.

Suggested Citation

  • Engelbert Stockhammer, 2000. "Explaining European Unemployment: Testing the NAIRU Theory and a Keynesian Approach," Department of Economics Working Papers wuwp068, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp068
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    References listed on IDEAS

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    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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    More about this item

    Keywords

    unemployment; NAIRU; Keynesian Theory; labour market flexibility; accumulation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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