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Can Productivity Growth Explain the NAIRU? Long‐Run Evidence from Britain, 1871–1999
Author(s) -
HATTON TIMOTHY J.
Publication year - 2007
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00548.x
Subject(s) - nairu , economics , productivity , unemployment , inflation (cosmology) , labour economics , cointegration , full employment , wage , short run , macroeconomics , econometrics , unemployment rate , physics , theoretical physics
This paper investigates the effect of productivity growth on the non‐accelerating inflation rate of unemployment (NAIRU) over the long run, using historically consistent time series for the UK from 1871 to 1999. A two‐equation model of unemployment and wage‐setting that incorporates productivity effects is estimated over the whole period, allowing for shifts associated with changes in labour market institutions. The results indicate that faster productivity growth reduces the NAIRU, but that this goes only part of the way towards explaining wide swings in average unemployment across the decades.