What We Know and Do Not Know About the Natural Rate of Unemployment
MIT Dept. of Economics WP Series 96-29
Posted: 31 Mar 1997
Date Written: October 31, 1996
Over the past three decades, a large amount of research has attempted to identify the determinants of the natural rate of unemployment. It is this body of work we assess in this paper. We reach two main conclusions. First, there has been considerable theoretical progress over the past 30 years. A framework has emerged. We present it and show how it can be used to think, for example, about the relations between technological progress and unemployment. Second, empirical knowledge lags behind. Economists do not have a good quantitative understanding of the determinants of the natural rate, either across time or across countries. We look at two issues: the relation of wages to unemployment and the rise of European unemployment.
JEL Classification: E20, E30, J60
Suggested Citation: Suggested Citation