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Vicious and virtuous circles -- The political economy of unemployment in interwar UK and USA

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  • Matthews, Kent
  • Minford, Patrick
  • Naraidoo, Ruthira

Abstract

This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment for the UK and the US interwar period. The theory here sees the natural rate and the associated path of unemployment as a reaction to mainly demand shocks and the institutional structure of the economy. The channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate react to shocks by demanding more or less social protection. The reduced form results confirm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.

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  • Matthews, Kent & Minford, Patrick & Naraidoo, Ruthira, 2008. "Vicious and virtuous circles -- The political economy of unemployment in interwar UK and USA," European Journal of Political Economy, Elsevier, vol. 24(3), pages 605-614, September.
    • Handle: RePEc:eee:poleco:v:24:y:2008:i:3:p:605-614
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    Cited by:

    1. Kurmaş Akdoğan, 2017. "Unemployment hysteresis and structural change in Europe," Empirical Economics, Springer, vol. 53(4), pages 1415-1440, December.
    2. Matthews, Kent & Minford, Patrick & Naraidoo, Ruthira, 2008. "Vicious and virtuous circles -- The political economy of unemployment in interwar UK and USA," European Journal of Political Economy, Elsevier, vol. 24(3), pages 605-614, September.
    3. Naveen Srinivasan & Pratik Mitra, 2014. "The European unemployment problem: its cause and cure," Empirical Economics, Springer, vol. 47(1), pages 57-73, August.
    4. Franchi, Massimo & Ordóñez, Javier, 2011. "Multiple equilibria in Spanish unemployment," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 71-80, February.
    5. Naveen Srinivasan & Pratik Mitra, 2016. "Interwar Unemployment in the UK and the US: Old and New Evidence," South Asian Journal of Macroeconomics and Public Finance, , vol. 5(1), pages 96-112, June.

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    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
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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