Can Productivity Growth Explain NAIRU? Long-run Evidence from Britain, 1871-1999

Timothy Hatton

No 3424, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The ?new economy? of the 1990s saw improving Phillips curve trade-offs coupled with faster productivity growth, particularly in the United States. This has led to a revival of the idea that there is an inverse relationship between productivity growth and the Non-Accelerating Inflation Rate of Unemployment (NAIRU). Because productivity trends evolve slowly, such effects have been difficult to identify using short runs of data. This paper investigates this relationship over a much longer period than usual. It draws on recently developed, 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 across major periods associated with changes in labour market institutions. The results indicate that trends in labour productivity do matter, but they go only part of the way towards explaining wide swings in average unemployment across the decades. Thus productivity is not the whole story, but it is some of the story. In addition, institutional changes appear to have enhanced the effects of productivity on the NAIRU, particularly in the post-Second World War era.

Keywords: Unemployment; Productivity growth (search for similar items in EconPapers)
JEL-codes: E32 J64 N14 N34 (search for similar items in EconPapers)
Date: 2002-06
New Economics Papers: this item is included in nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://cepr.org/publications/DP3424 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Can Productivity Growth Explain the NAIRU? Long‐Run Evidence from Britain, 1871–1999 (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3424

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3424

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().