The Lack of Wage Growth and the Falling NAIRU

David N.F. Bell and David Blanchflower

National Institute Economic Review, 2018, vol. 245, issue 1, R40-R55

Abstract: In this note, we argue that a considerable part of the explanation for the benign wage growth in the advanced world is the rise in underemployment. In the years after 2008 the unemployment rate understates labour market slack. Underemployment is more important than unemployment in explaining the weakness of wage growth in the UK. The Phillips curve in the UK has now to be rewritten into wage underemployment space. Underemployment now enters wage equations while the unemployment rate does not. There is every reason to believe that the NAIRU has fallen sharply since the Great Recession. In our view the NAIRU in the UK may well be nearer to 3 per cent, and even below it, than around 5 per cent, which other commentators including the MPC and the OBR believe.

Keywords: unemployment; underemployment; wage inflation; hours (search for similar items in EconPapers)
JEL-codes: E31 J22 J31 J42 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (18)

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Journal Article: The lack of wage growth and the falling NAIRU (2018)
Working Paper: The Lack of Wage Growth and the Falling NAIRU (2018)
Working Paper: The Lack of Wage Growth and the Falling NAIRU (2018)
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