High Unemployment in Europe: Diagnosis and Policy Implications

55 Pages Posted: 21 May 2004 Last revised: 2 Jan 2022

See all articles by Jeffrey D. Sachs

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: February 1986

Abstract

Econometric evidence suggests that the non-accelerating inflation rate of unemployment (the NAIRU) has risen sharply in Europe in the past fifteen years. In the first section of this paper, I review the recent proliferation of supply-side models that say interesting things about why the NAIRU hasincreased so substantially in Europe. In the second section of the paper, I employ a simple example to show how aggregate demand should optimally be managed in response to transitory and permanent supply shocks, especially those shocks that cause a persistent rise in the NAIRU. Also, I discuss some policy implications of the increasingly popular "hysteresis hypothesis, that the NAIRU itself is influenced by the time path of actual unemployment.

Suggested Citation

Sachs, Jeffrey D., High Unemployment in Europe: Diagnosis and Policy Implications (February 1986). NBER Working Paper No. w1830, Available at SSRN: https://ssrn.com/abstract=338860

Jeffrey D. Sachs (Contact Author)

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