Tuesday, July 23, 2019

No Such Thing As The Natural Rate Of Unemployment

I know that the idea of a "natural rate" of unemployment or a non-accelerating inflation rate of unemployment (NAIRU) makes no sense. I cite, for example, James Galbraith's 1998 book, Created Unequal: The Crisis in American Pay. I think Colin Rogers' 1989 book is related.

Jared Bernstein gives the idea of a natural rate of unemployment at the first of four examples of ideas that [mainstream] economists have gotten wrong for decades. This is not the first example of a case where Post Keynesians (and only Post Keynesians(?)) could explain an empirical phenomenon decades in advance.


Emil Bakkum said...

Robert, Some years ago I tried to understand the demand side policy. I learned that the NAIRU is an empirical rate of unemployment, which is derived from the Phillips curve. The natural rate of unemployment is a model hypothesis, which does not necessarily require a constant inflation. So they are not necessarily equal.

Emil Bakkum said...

And Gintis believes, that unemployment follows naturally from the tendency of producers to pay an efficiency wage. This is necessary for inciting workers to make a maximal effort, but prevents the labour market from clearing.