Macroeconomics Beyond the NAIRU

Non-Accelerating Inflation Rate of Unemployment – NAIRU Definition
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Servaas Storm, C. Economists and the governments they advise have based their macroeconomic policies on the idea of a natural rate of unemployment. Government policy that pushes the rate below this pointabout 6 percentis apt to trigger an accelerating rate of inflation that is hard to reverse, or so the argument goes. In this book, Storm and Naastepad make a strong case that this concept is flawed: that a stable non-accelerating inflation rate of unemployment NAIRU , independent of macroeconomic policy, does not exist.

Is there an optimal rate of unemployment?

Editor's Corner

The authors make a strong case that a stable Non-Accelerating Inflation Rate of Unemployment (NAIRU), independent of macroeconomic. Macroeconomics Beyond the NAIRU Hardcover – November 21, Economists and the governments they advise have based their macroeconomic policies on the idea of a natural rate of unemployment. In this book, Storm and Naastepad make a strong case that this concept is flawed: that a.

Is there an optimal rate of real wage growth? How should the proposed demand expansion be implemented? To be provocative: Would it not be sufficient to aim at a constant growth rate of the money supply? Instead of distributing productivity gains via rising wages, let us distribute them in the way of lower prices. With an ongoing growth of the nominal supply of money or even with no growth at all after a first stimulus , the real money supply would rise indefinitely, increasing demand and productivity again and again.

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Consequently, government decisions based on the NAIRU are not only misguided but have huge and avoidable social costs, namely, high unemployment and sustained inequality. Phillips Curve models can therefore be used to determine the lowest level of unemployment consistent with stable prices. Write a Review. Conversely, if unemployment falls below the NAIRU level, the economy is doing well , inflation should increase. More from the Authors.

Unfortunately, the authors missed the opportunity to completely convince me as a sceptical reader that their policy proposals are feasible. The main result of this part of the book is that tighter labour market regulation will have beneficial effects on productivity growth. Yes, without doubt this positive association is quite intuitive.

Servaas Storm and C.W.M. (Ro) Naastepad, Macroeconomics Beyond the NAIRU

However, as an economist, I would have favoured to first be persuaded that investment in firm-specific human capital without employment protection is less than optimal, as for example external effects are not internalised, and that there is no other solution than state intervention, which is, in this case, labour-market regulation. I imagine that firms being aware of this problem will offer long-term contracts to employees working in crucial parts of the firm.

If not for the sake of the worker, then at least for the sake of the firm as the firm receives a revenue in the way of highly skilled and specialised labour which might pay off in the form of a competitive advantage. Thus, more emphasis should have been put on the problem of market failure and the necessity of government intervention.

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The answer, as always in economics, is as usual: It depends. As concerns the questionable discussion of mainstream economics, this book should not be considered by anyone. If you just finished your Bachelor in economics, then my advice would be to postpone reading the book and get a balanced view of modern macroeconomics first. Then you are encouraged to read it and decide by yourself.

If you are in general interested about different approaches to economics and economic policy, then this book might be a candidate for your reading list.

click here If you regard yourself to be a mainstream economist, you may want to consider reading the book. The core of the argument is most interesting and valuable. Unfortunately, the presentation of the arguments is very debatable. As a compromise, anyone interested in their research may want to have a look at the published journal articles first on which the book builds Naastepad, ; Naastepad and Storm, ; Storm and Naastepad, ; Storm and Naastepad, a, b, c —which also show that their research is indeed very promising and acknowledged in the scientific community.

Blanchard, Olivier and Justin Wolfers.

Demand, secular stagnation and the vanishing middle-class.

The Economic Journal, : C1-C Krugman, Paul. The movement of labor in and out of employment, whether it's voluntary or not, represents natural unemployment. NAIRU has to do with the relationship between unemployment and inflation or rising prices. NAIRU is the specific level of unemployment whereby the economy does not cause inflation to increase. NAIRU is a study of the historical relationship between unemployment and inflation and represents the specific level of unemployment before prices tend to rise or fall.

However, in the real world, the historical correlation between inflation and unemployment can break down. Also, many factors impact unemployment besides inflation.

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For example, workers who lack the skills needed to get a job would likely face unemployment, while the workers who have the skills are likely to be employed. One of the challenges lies in estimating the NAIRU level for different groups of workers who have different skillsets.

A Dynamic Analysis of Demand and Productivity Growth in a Two-sector Kaleckian Model

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