Vicious and Virtuous Circles - The Political Economy of Unemployment in Interwar UK and USA

Kent Matthews, A. Patrick Minford and Ruthira Naraidoo

No E2006/25, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment. This model is applied to the UK and the US interwar period which is remembered as the decade of mass unemployment. The theory here sees the natural rate and the associated path of unemployment as a reaction to shocks (mainly demand in nature) and the institutional structure of the economy. The channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate react to shocks by demanding more or less social protection. The reduced form results obtained confirm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.

Keywords: Equilibrium unemployment; political economy; 'vicious' and 'virtuous' circles; bootstrapping (search for similar items in EconPapers)
JEL-codes: E24 E27 P16 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-01, Revised 2006-11
New Economics Papers: this item is included in nep-his, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in European Journal of Political Economy Volume 24, Issue 3, September 2008, Pages 605-614

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Related works:
Journal Article: Vicious and virtuous circles -- The political economy of unemployment in interwar UK and USA (2008)
Working Paper: Vicious and Virtuous Circles - The Political Economy of Unemployment in Interwar UK and USA (2008)
Working Paper: Vicious and Virtuous Circles - The Political Economy of Unemployment in Interwar UK and USA (2006)
Working Paper: Vicious and Virtuous Circles - the Political Economy of Unemployment in Interwar UK and USA (2006)
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