Reducing Unemployment: A Case for Government Deregulation

By Garry K. Ottosen; Douglas N. Thompson | Go to book overview

CHAPTER 2
THE NAIRU

In Chapter 1, the concept of a natural rate of unemployment was briefly mentioned. As discussed, this is the rate of unemployment below which the economy cannot be pushed and still expect to have stable inflation. This rate is perhaps more accurately called the nonaccelerating inflation rate of unemployment or NAIRU. In other words, it is the unemployment rate that is consistent with stable or nonaccelerating inflation. Economists disagree over whether the two terms refer to the same thing, but this book will not debate that issue. For our purposes, the NAIRU and the natural rate of unemployment both refer to that rate of unemployment that is consistent with stable or nonaccelerating inflation. Given this definition, NAIRU is the more accurate term and is the term used in our examination of unemployment levels and inflation.

What is the NAIRU, and why does it exist? What determines it, and what causes it to change? How do government policies affect the NAIRU, and can government policies reduce it? These are the questions addressed in this chapter.


THE EXISTENCE OF A NAIRU

Let us begin by providing some evidence that a NAIRU does exist in the United States and discussing why it exists. To document more clearly the existence of a NAIRU in the United States, evidence of an unemployment rate below which inflation begins to accelerate or an unemployment rate that is consistent with stable inflation is presented.

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Reducing Unemployment: A Case for Government Deregulation
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Chapter 1 - THE COSTS OF UNEMPLOYMENT 1
  • Notes 10
  • Chapter 2 - THE NAIRU 11
  • Notes 28
  • Chapter 3 - A FAULTY DIAGNOSIS OF UNEMPLOYMENT 30
  • Notes 48
  • Chapter 4 - BUSINESS COSTS, GOVERNMENT REGULATIONS, AND THE NAIRU 51
  • Notes 73
  • Chapter 5 - UNEMPLOYMENT INSURANCE, SOCIAL WELFARE, AND THE NAIRU 75
  • Notes 96
  • Chapter 6 - THE UNION WAGE PREMIUM AND THE NAIRU 98
  • Notes 114
  • Chapter 7 - UNION PRODUCTIVITY EFFECTS, LABOR LAW, AND THE NAIRU 117
  • Notes 133
  • Chapter 8 - PRODUCTIVITY AND THE NAIRU 136
  • Notes 143
  • Chapter 9 - SUMMARY 144
  • Notes 155
  • Bibliography 157
  • Index 165
  • About the Authors 173
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