What we know and do not know about the natural rate of unemployment PDF
Preview What we know and do not know about the natural rate of unemployment
Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium IVIember Libraries http://www.archive.org/details/whatweknowdonotkOOblan '"'i^fwi::f working paper department of economics What WeKnowandDoNotKnowabout theNaturalRateofUnemployment OlivierBlanchard* Uatorence-F. feV^. October, 1996 massachusetts institute of technology 50 memorial drive Cambridge, mass. 02139 What WeKnowandDoNotKnowabout theNaturalRateofUnemployment OlivierBlanchard* Uu>n5f>ce-P, feh. 96-29 October, 1996 STITUTE What We Know and Do Not Know About the Natural Rate of Unemployment Olivier Blanchard Lawrence E Katz * • Department ofEconomics, MIT, Cambridge, MA, 02138 (blanchar@ mit.edu), and Depart- mentofEconomics, Harvard University, Cambridge, MA, 02139 ([email protected].) This paper was written for the Journal of Economic Perspectives. We thank Marianne Bertrand for superb research assistance and David Card forprovidinguswith earningsdata bystate from the March CurrentPopulation Surveys. Wearegrateful toCharlie Bean, David Blanchflower, David Card, PeterDiamond, Brad DeLong, Richard Freeman,JuanJimeno, Alan Kruegen Richard La- yard, Greg Mankiw, Steve Nickell, Andrew Oswald, Edmund Phelps, Qlles Saint-Paul, Robert Solow, and TimothyTaylor forcomments. Natural rate Abstract CX^er the past three decades, alarge amountofresearch hasattempted to identify the determinants ofthe natural rate ofunemployment. It is thisbody ofwork we assess in this paper. We reach two mainconclusions. First, there hasbeen consid- erable theoretical progress over the past 30 years. A framework has emerged. We present it, and show how it can be used to think for example about the relation between technologicalprogressand unemployment. Second, empirical knowledge lagsbehind. Economistsdo not have agoodquantitative understandingofthe de- We terminants ofthe riatural rate, either across time or across countries. look at two issues, the relation ofwages to unemployment, and the rise ofEuropean un- employment.
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