NAWRUNon-Accelerating Wage Rate of Unemployment
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The paper is structured as follows: the next section outlines indicators of wage inflation and unemployment since 1980 which suggest that a priori that labour market structural conditions have changed over the period implying that the NAWRU could not have been constant for the duration to 2005.
However, over the past ten years, the latter economies have made progress in terms of both participation rates and structural unemployment rates, as measured by the NAWRU.
During the last years of the period, however, employment grows somewhat more slowly than in the main scenario, and unemployment turns slightly upward (see Diagram 118); this development is consistent with a gradual return of NAWRU towards its original level.
In practice, the choice between wage or price inflation does not appear to radically alter the results, although the use of price inflation represents a change from previous OECD estimates which relate to wage inflation and hence the NAWRU.
The OECD's NAWRU method, see Elmeskov and McFarland (1993) and Elmeskov (1994), can also be easily understood using main course unemployment.
The Norwegian authorities estimate the NAWRU as between 3 1/2 and 4 per cent.
1996); Ball (1996) has noted that estimated NRUs (he used the OECD NAWRU estimates) have risen simultaneously with disinflation efforts and that this rise does not seem to be correlated across countries with labour market features, except for the duration of unemployment compensation benefits.
At the same time, enterprise restructuring could have raised capital productivity significantly and more flexible wage bargaining might have lowered the NAWRU so that excess capacity would be greater than estimated by the OECD.
The output gap calculated by the OECD Secretariat assumes that the NAWRU is currently around 7 per cent, compared with over 10 per cent in the mid-1980s.
0 per cent -- not far from most estimates of the NAWRU.
Indeed, real wage increases in the face of high and rising unemployment rates suggest that the NAWRU, the unemployment rate needed to stabilise wage inflation, may have drifted up in the recent recession, and that it may currently exceed the officially-estimated 8 to 9 per cent level.
On the Secretariat's estimate, the actual unemployment rate is already slightly below the NAWRU.