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Title:Adjustment dynamics and the natural rate: An account of UK unemployment PDF Logo
Authors:Henry, Brian
Karanassou, Marika
Snower, Dennis J.
Issue Date:1999
Series/Report no.:Discussion paper series / Forschungsinstitut zur Zukunft der Arbeit 75
Abstract:This paper challenges what is the standard account of UK unemployment, namely that the major swings in unemployment over the past 25 years are due predominantly to movements in the underlying empirical “natural rate of unemployment” (NRU). Our analysis suggests that the British NRU has remained reasonable stable through time and that the medium-run swings in unemployment are due, instead, to very prolonged after-effects of persistent (transitory but long-lasting) shocks. We argue that (a) past UK labour market shocks have prolonged after-effects on unemployment due to interactions among different lagged adjustment processes in the labour market, (b) many of the important shocks that have hit the UK labour market over the past 25 years have been persistent, and (c) the persistence of the shocks is complementary to the persistence of the lagged adjustment processes in generating movements of UK unemployment.
Subjects:Unemployment
Natural rate hypothesis
Labour markets
Employment
Adjustment costs
JEL:J64
E30
E37
J32
J60
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
Publikationen von Forscherinnen und Forschern des IfW

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