Working Paper: CEPR ID: DP262
Authors: Patrick Minford
Abstract: The paper surveys recent analyses of rising unemployment in Europe based on the concept of the natural rate. It argues that there is a continuity of analysis from the classics through Keynes to these more recent approaches. Theories of efficiency wages, hysteresis, and insiders/outsiders are related to a core theory in which the unemployment benefit is the basic source of rigidity. It is argued that these more recent approaches are either variations of or additions to this core theory, and that in its absence they would fail to explain unemployment.
Keywords: natural rate of unemployment; unemployment benefit; keynes; wage rigidity
JEL Codes: 030; 131; 824
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment benefit system (J65) | labor supply elasticity (J20) |
| labor supply elasticity (J20) | unemployment rates (J64) |
| unemployment benefit system (J65) | unemployment rates (J64) |
| real wages fall relative to unemployment benefits (J65) | withdrawal from labor market (J22) |
| withdrawal from labor market (J22) | higher unemployment rates (J64) |
| changes in unemployment benefits (J65) | changes in labor supply elasticity (J20) |
| historical context of unemployment benefits (J65) | rise in natural rates of unemployment (F66) |
| union power and employer costs (J51) | labor market outcomes (J48) |