Explaining European Unemployment: Testing the NAIRU Theory and a Keynesian Approach

Engelbert Stockhammer

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: The aim of the paper is to contrast and test the NAIRU theory and the Keynesian theory of unemployment econometrically. For the former, wage push variables are key in explaining the rise of European unemployment, for the latter accumulation is. The theories are tested using time series data for Germany, France, Italy, the UK and the USA, using the seemingly unrelated regression method (SUR). Unemployment benefits, union density and the tax wedge were used as wage push variables, and the growth of business capital stock as the accumulation variable. The NAIRU specification performed poorly, with only the tax wedge having a positive effect on unemployment as predicted. The Keynesian approach was more successful, with accumulation being statistically significant in all countries. Moreover, the tax wedge and accumulation are fairly robust to changes in the specification and can be pooled across countries.

Keywords: unemployment; NAIRU; Keynesian Theory; labour market flexibility; accumulation (search for similar items in EconPapers)
JEL-codes: E24 (search for similar items in EconPapers)
Date: 2000-02
New Economics Papers: this item is included in nep-his, nep-lab and nep-ltv
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Working Paper: Explaining European unemployment. Testing the NAIRU theory and a Keynesian approach (2000)
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