Can Productivity Growth Explain the NAIRU? Long‐Run Evidence from Britain, 1871–1999

Hatton, Timothy J.

doi:10.1111/j.1468-0335.2006.00548.x

Cited by 27 publications

(25 citation statements)

References 41 publications

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“…8, suggests that β 12 < 0 for both countries. Previous results are mixed, but our findings reinforce evidence of a negative relationship between productivity and the NAIRU in both countries (Broersma et al 2000;Hatton 2007).…”

Section: Hysteresis Hypothesissupporting

confidence: 80%

Hysteresis and labour market institutions. Evidence from the UK and the Netherlands

Gil

2017

Empir Econ

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This paper uses data for the UK and the Netherlands (1983q4-2011q4) to test if hysteresis occurs in these economies, and through what mechanisms. The novelty of the paper resides in the use of a VAR-IRF that encompasses previous hysteresis studies, using long-term unemployment, productivity, capital stock and real long-term interest rates, and in the use of specific Labour Market Institutions shocks, such as benefits, taxation or unions' power. This allows us to disentangle what specific demand and supply-variables affect unemployment in the long-run, i.e. the NAIRU. Our findings suggest that there is hysteresis in both countries, and that it happens through several channels. Further, we find that the influence of Labour Market Institutions on unemployment depend on their impact on the real wages-productivity gap. These results have implications for structural and macroeconomic policies that we also discuss. Finally, we investigate the impact of different supply and demand-shock on long-term unemployment and discuss the relevant policy implications.Keywords Hysteresis · NAIRU · Labour Market Institutions · Impulse response analysisWe would like to thank the referee and the editor for their comments and useful suggestions. We are also grateful to

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Section: Hysteresis Hypothesissupporting

confidence: 80%

Hysteresis and labour market institutions. Evidence from the UK and the Netherlands

Gil

2017

Empir Econ

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“…Here we develop a basic framework within which to examine the effects of wage pressure variables and other determinants of unemployment over the long run (see Hatton 2003). Like most models of this type, it consists of a wage-setting equation and an unemployment equation from which an expression for the Non-Accelerating Inflation Rate of Unemployment (NAIRU) can be derived.…”

Section: A Benchmark Model Of the Labour Marketmentioning

confidence: 99%

“…We then explore further below the question of how well the model predicts the rise in unemployment over those years. The first column of Table 2 is a baseline estimate that is explored more fully in Hatton (2003) and it includes period dummies for the interwar years, the golden age and the post-1979 periods. The coefficient on unemployment is negative as expected for a wage setting function, although it has only borderline significance.…”

Section: The Real Wage Equationmentioning

confidence: 99%

Unemployment and the UK labour market before, during and after the Golden Age

Hatton

Boyer

2005

European Review of Economic History

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During the 'golden age' of the 1950s and 1960s unemployment in Britain averaged 2 per cent. This was far lower than ever before or since and a number of hypotheses have been put forward to account for this unique period in labour market history. But there has been little attempt to isolate precisely how the determinants of wage setting and unemployment differed before, during and after the golden age. We estimate a two-equation model over the whole period from 1872 to 1999 using a newly constructed set of long-run labour market data. We find that the structure of real wage setting was different in the golden age, consistent with notions about the postwar consensus, but it did not result in wages that were significantly lower relative to productivity than during other eras. Rapid growth in productivity and world trade together with low interest rates did keep unemployment lower during the golden age than after the 1970s. But the key difference between the golden age and the periods before and after was shifts in labour demand that are not accounted for by any of the variables that are usually thought to determine the equilibrium unemployment rate. During the 'golden age' of the 1950s and 1960s unemployment in Britain averaged 2 per cent. This was far lower than ever before or since and a number of hypotheses have been put forward to account for this unique period in labour market history. But there has been little attempt to isolate precisely how the determinants of wage setting and unemployment differed before, during and after the golden age. We estimate a two-equation model over the whole period from 1872 to 1999 using a newly constructed set of long-run labour market data. We find that the structure of real wage setting was different in the golden age, consistent with notions about the postwar consensus, but it did not result in wages that were significantly lower relative to productivity than during other eras. Rapid growth in productivity and world trade together with low interest rates did keep unemployment lower during the golden age than after the 1970s. But the key difference between the golden age and the periods before and after was shifts in labour demand that are not accounted for by any of the variables that are usually thought to determine the equilibrium unemployment rate.

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“…The elasticities (slopes) of the individual equations can be quite misleading regarding the influence of the exogenous variables on the endogenous ones, since the spillovers in the system can substantially affect both the size and the sign of the elasticities (slopes). On these grounds, vector autoregressions (VARs), 19 with their exclusive focus on the IRFs of the system offered a statistically robust (albeit economically sterile) alternative. VARs were heavily criticized 17 Note that the simultaneous equation literature refers to "direct" and "indirect" effects of the exogenous variables instead of "local" and "global" effects.…”

Section: Evaluating Macro Models: "Global" Versus "Local" Elasticitiesmentioning

confidence: 99%

“…Ihrig and Márquez (2004), also for the OECD countries, argue that the declines in inflation in the nineties have no single cause. However, taking a very long-run perspective of the UK economy, Hatton (2007) finds that productivity growth matters for the NAIRU. The role played by the acceleration in labour productivity is also found to be central in the US.…”

Section: Introductionmentioning

confidence: 99%