Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment

Dennis Snower, Marika Karanassou () and Brian Henry ()
Additional contact information
Brian Henry: University of Oxford

No 75, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper challenges what is the standard account of UK unemployment, namely that the major swings in unemployment over the past 25 years are due predominantly to movements in the underlying empirical "natural rate of unemployment" (NRU). Our analysis suggests that the British NRU has remained reasonable stable through time and that the medium-run swings in unemployment are due, instead, to very prolonged after-effects of persistent (transitory but long-lasting) shocks. We argue that (a) past UK labour market shocks have prolonged after-effects on unemployment due to interactions among different lagged adjustment processes in the labour market, (b) many of the important shocks that have hit the UK labour market over the past 25 years have been persistent, and (c) the persistence of the shocks is complementary to the persistence of the lagged adjustment processes in generating movements of UK unemployment.

Keywords: adjustment costs; Unemployment; natural rate hypothesis; labour markets; employment (search for similar items in EconPapers)
JEL-codes: E30 E37 J32 J60 J64 (search for similar items in EconPapers)
Pages: 30 pages
Date: 1999-12
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (4)

Published - published in: Oxford Economic Papers, 52 (2000), 178-203

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Journal Article: Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment (2000)
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