Vicious and Virtuous Circles: The Political Economy of Unemployment

Ruthira Naraidoo and A. Patrick Minford

No KERP 2006/03, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: We develop a theoretical nonlinear model of equilibrium unemployment and test its policy implications for a number of OECD countries. The theory here sees the natural rate and the associated equilibrium path of unemployment as endogenous, pushed by the interaction of shocks 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 of unemployment react to shocks by demanding more or less social protection. The reduced form results from a dozen OECD economies give support to the model and further evidence is obtained by structural estimates for the UK.

Keywords: Equilibrium unemployment; political economy; vicious and virtuous circles; bootstrapping (search for similar items in EconPapers)
JEL-codes: C15 C22 E24 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-pol
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Related works:
Journal Article: VICIOUS AND VIRTUOUS CIRCLES – THE POLITICAL ECONOMY OF UNEMPLOYMENT (2010)
Working Paper: Vicious and virtuous circles--The political economy of unemployment (2009)
Working Paper: Vicious and Virtuous Circles - The Political Economy of Unemployment (2002)
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