OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
What Drives the NAIRU? Evidence from a Panel of OECD Countries
This paper analyses the determinants of structural unemployment rates in a two-stage approach. First,
time-varying NAIRUs are estimated for a panel of OECD economies on the basis of Phillips curve
equations using Kalman filter techniques. In a second stage, the estimated NAIRUs are regressed on
selected policy and institutional variables. As predicted by theoretical wage-setting/price-setting models,
the level of the tax wedge and the user cost of capital are found to be important drivers of structural
unemployment. Consistent with earlier studies, the level of product market regulation, union density and
the unemployment benefit replacement rate also play an important role in explaining changes in the
NAIRU although there is considerable variation in estimates across countries. Nonetheless, the set of
structural variables provides a reasonable explanation of NAIRU dynamics over the period 1978-2003,
even though recent decreases are better explained than the earlier surge.
Keywords: institutions, NAIRU, policy reforms, user cost of capital, Phillips curve, unemployment
JEL:
C22: Mathematical and Quantitative Methods / Single Equation Models; Single Variables / Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes;
E31: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Price Level; Inflation; Deflation;
J38: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Wages, Compensation, and Labor Costs: Public Policy;
E24: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity;
C13: Mathematical and Quantitative Methods / Econometric and Statistical Methods and Methodology: General / Estimation: General;
J58: Labor and Demographic Economics / Labor-Management Relations, Trade Unions, and Collective Bargaining / Labor-Management Relations, Trade Unions, and Collective Bargaining: Public Policy;
J68: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Mobility, Unemployment, and Vacancies: Public Policy
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