Restructuring, the NAIRU, and the Phillips Curve

by Geoffrey M.B. Tootell
September/October 1994

Recent news stories about corporate downsizing have increased concerns that the labor market is being permanently restructured. The press implicitly, and some economists explicitly, have concluded that this "restructuring" in the labor market has increased the rate of unemployment that is consistent with stable inflation. This rate is known as the NAIRU, the non-accelerating-inflation rate of unemployment, the unemployment rate below which inflation tends to rise, and above which inflation tends to fall.

This article examines both macroeconomic data and more disaggregated data in search of evidence that the NAIRU has increased. The author finds that neither type of data supports a conclusion that NAIRU has risen in the past few years. He concludes with a brief assessment of the difficulties of estimating the NAIRU.

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