IDEAS home Printed from https://ideas.repec.org/p/lev/wrkpap/wp_203.html
   My bibliography  Save this paper

The NAIRU: A Critical Appraisal

Author

Listed:
  • Malcolm Sawyer

Abstract

This paper is concerned with the question of the relevance of the NAIRU for policy formulation. However, that question leads to the following consideration. The estimates for the NAIRU are based on the econometric estimation of models of the economy. Particular models are used and particular interpretations are placed on the relationship between the variables which the model involves. Since the NAIRU can never be directly observed, resort has to be made to the econometric estimation of wage and price equations from which an equilibrium solution for unemployment is derived and labeled the NAIRU. It is therefore important to know how valid those models are and the estimates derived from those models. Whilst some have pointed to the unreliability of those estimates (e.g. Setterfield et alia, 1992) and others to the degree of uncertainty surrounding the estimates (e.g. Madsen, 1997), others have put a great deal of faith in specific estimates: for example the ‘Tightness in the labor market is measured by the excess of CBO's estimate of the non accelerating inflation rate of unemployment (NAIRU) over the actual unemployment rate. It is an indicator of future wage inflation' (Congressional Budget Office, 1994, p. 4), and that Office uses an estimate of 6 percent for the NAIRU. One expression of the belief in the NAIRU is given by Stiglitz when he writes that ‘I have become convinced that the NAIRU is a useful analytic concept. It is useful as a theory to understand the causes of inflation. It is useful as an empirical basis for predicting changes in the inflation rate. And it is useful as a general guideline for thinking about macroeconomic policy' (Stiglitz, 1997, p. 3). The focus pf this paper is not on the reliability or otherwise of estimates of the NAIRU, but rather to evaluate the theoretical foundation of the models from which the NAIRU has been derived. For if those models are on some relevant criteria judged to be unsound, then estimates and policy conclusion der
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Malcolm Sawyer, 1997. "The NAIRU: A Critical Appraisal," Economics Working Paper Archive wp_203, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_203
    as

    Download full text from publisher

    File URL: http://www.levyinstitute.org/pubs/wp203.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cross,Rod Preface by-Name:Blanchard,Olivier (ed.), 1995. "The Natural Rate of Unemployment," Cambridge Books, Cambridge University Press, number 9780521483308, October.
    2. Malcolm C. Sawyer, 1983. "Business Pricing and Inflation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-03166-5, December.
    3. Malcolm C. Sawyer, 1992. "On Imperfect Competition and Macroeconomic Analysis," Palgrave Macmillan Books, in: Alfredo Monte (ed.), Recent Developments in the Theory of Industrial Organization, chapter 4, pages 79-113, Palgrave Macmillan.
    4. Layard, R. & Nickell, S., 1985. "The Causes of British Unemployment," National Institute Economic Review, National Institute of Economic and Social Research, vol. 111, pages 62-85, February.
    5. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    6. Sawyer, Malcolm C, 1982. "Collective Bargaining, Oligopoly and Macro-Economics," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 428-448, November.
    7. repec:sae:niesru:v:111:y::i:1:p:62-85 is not listed on IDEAS
    8. Layard, R. & Nickell, S., 1985. "The Causes of British Unemployment," National Institute Economic Review, National Institute of Economic and Social Research, vol. 111, pages 62-85, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rudy Fichtenbaum, 2003. "Is there a natural level of capacity utilization?," Forum for Social Economics, Springer;The Association for Social Economics, vol. 33(1), pages 45-62, September.
    2. Malcolm Sawyer, 1997. "Aggregate Demand, Investment and the NAIRU," Macroeconomics 9712012, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesco Bogliacino & Marco Vivarelli, 2012. "The Job Creation Effect Of R&D Expenditures," Australian Economic Papers, Wiley Blackwell, vol. 51(2), pages 96-113, June.
    2. John Burgess & Julia Connell, 2020. "New technology and work: Exploring the challenges," The Economic and Labour Relations Review, , vol. 31(3), pages 310-323, September.
    3. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h561p0po1 is not listed on IDEAS
    4. Amitava Krishna Dutt & Peter Skott, 2006. "Keynesian Theory and the AD-AS Framework: A Reconsideration," Contributions to Economic Analysis, in: Quantitative and Empirical Analysis of Nonlinear Dynamic Macromodels, pages 149-172, Emerald Group Publishing Limited.
    5. repec:spo:wpmain:info:hdl:2441/6120 is not listed on IDEAS
    6. repec:hal:wpspec:info:hdl:2441/2005 is not listed on IDEAS
    7. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute of Labor Economics (IZA).
    8. Outi Aarnio, 1989. "On the effects of duration on Finnish unemployment," Finnish Economic Papers, Finnish Economic Association, vol. 2(1), pages 65-81, Spring.
    9. Robert M. Coen, 1999. "The NAIRU and Wages in Local Labor Markets," American Economic Review, American Economic Association, vol. 89(2), pages 52-57, May.
    10. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," Working Papers hal-03602950, HAL.
    11. Alberto Alonso & Cristina Echevarria & Kien C. Tran, 2004. "Long‐Run Economic Performance and the Labor Market," Southern Economic Journal, John Wiley & Sons, vol. 70(4), pages 905-919, April.
    12. van de Klundert, T.C.M.J. & Peters, P., 1986. "Price inertia in a macroeconomic model of monopolistic competition," Research Memorandum FEW 221, Tilburg University, School of Economics and Management.
    13. repec:hal:wpspec:info:hdl:2441/6120 is not listed on IDEAS
    14. Andrey V. Zubarev & Valeriia A. Tadei, 2023. "Testing the Presence of the Hysteresis Effect Unemployment Dynamics in Russia [Проверка Наличия Эффекта Гистерезиса В Динамике Безработицы В России]," Russian Economic Development, Gaidar Institute for Economic Policy, issue 8, pages 12-21, August.
    15. Marcellino, M. & Mizon, G.E., 2001. "Small system modelling of real wages, inflation, unemployment and output per capita in Italy 1970-1994," Discussion Paper Series In Economics And Econometrics 0106, Economics Division, School of Social Sciences, University of Southampton.
    16. repec:hal:spmain:info:hdl:2441/6120 is not listed on IDEAS
    17. repec:spo:wpecon:info:hdl:2441/1625 is not listed on IDEAS
    18. Skott, Peter, 2005. "Fairness as a source of hysteresis in employment and relative wages," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 305-331, July.
    19. Julien, Ludovic A. & Sanz, Nicolas, 2005. "Monopolistic competition, transaction costs and multiple equilibria," Economics Letters, Elsevier, vol. 87(1), pages 21-26, April.
    20. Massimiliano Marcellino & Grayham E. Mizon, 2000. "Wages, Prices, Productivity, Inflation and Unemployment in Italy 1970-1994," Econometric Society World Congress 2000 Contributed Papers 0911, Econometric Society.
    21. Olivier J. Blanchard, 1986. "Empirical Structural Evidence on Wages, Prices and Employment in the US," NBER Working Papers 2044, National Bureau of Economic Research, Inc.
    22. Massimiliano Marcellino & Grayham E. Mizon, 2001. "Small-system modelling of real wages, inflation, unemployment and output per capita in Italy 1970-1994," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 359-370.
    23. Mariacristina Piva & Marco Vivarelli, 2017. "The employment impact of R&D expenditures and capital formation," DISCE - Quaderni del Dipartimento di Politica Economica ispe0078, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    24. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," SciencePo Working papers Main hal-03602950, HAL.
    25. Ronald Schettkat, 2002. "Regulation in the Dutch and German Economies at the Root of Unemployment?," SCEPA working paper series. 2002-05, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    26. Mariacristina Piva & Marco Vivarelli, 2018. "Is Innovation Destroying Jobs? Firm-Level Evidence from the EU," Sustainability, MDPI, vol. 10(4), pages 1-16, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_203. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Elizabeth Dunn (email available below). General contact details of provider: http://www.levyinstitute.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.