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Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the non-accelerating inflation rate of unemployment (NAIRU). We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU and because it is more directly supported by the data.

The rate of inflation fell far less over the period 2007-2013 than in the period 1979-1985 despite similar large increases in the unemployment rate. This paper asks why. Possible explanations include a change in the persistence of inflation, changes in NAIRU, and other shocks. A change in the persistence of inflation, with inflation more anchored in the period 2007-2013 than in the period 1979-1985, is found to be important. The level and change in the NAIRU cannot be precisely estimated, but the data suggest an increase of nearly 1 percentage point since 2007.

This study evaluates the relationship between labor demand and unemployment in Colombia for January 2011 to January 2022. The research follows a structured and quantitative approach, adopting an explanatory and longitudinal perspective. A detailed analysis of sectors with high labor demand is conducted, and key indicators such as the job vacancy rate, the Non-Accelerating Inflation Rate of Unemployment (NAIRU), and the Long-Term Unemployment Persistence Rate (LAPU) are calculated based on a solid theoretical foundation. Using graphical analysis and Vector Autoregressive (VAR) models, a non-linear relationship between the job vacancy rate and the NAIRU is identified. It is observed that an increase in the persistence of unemployment duration leads to a rise in the job vacancy rate (JVR), indicating structural inequality in the labor market. Variance decomposition analysis and impulse response functions confirm that both the NAIRU and the LAPU have a significant impact on the variability of the job vacancy rate. These findings suggest that the JVR is influenced by both structural and frictional factors in the labor market, although it primarily responds to fluctuations in the economic cycle, which are best identified through the Unemployment Gap.

In this paper, we develop a bivariate unobserved components model for inflation and unemployment. The unobserved components are trend inflation and the non-accelerating inflation rate of unemployment (NAIRU). Our model also incorporates a time-varying Phillips curve and time-varying inflation persistence. What sets this paper apart from the existing literature is that we do not use unbounded random walks for the unobserved components, but rather bounded random walks. For instance, NAIRU is assumed to evolve within bounds. Our empirical work shows the importance of bounding. We find that our bounded bivariate model forecasts better than many alternatives, including a version of our model with unbounded unobserved components. Our model also yields sensible estimates of trend inflation, NAIRU, inflation persistence and the slope of the Phillips curve.

La tasa de desempleo no aceleradora de la inflación (NAIRU, por sus siglas en inglés) no es directamente observable y la presencia de trabajadores informales impone un desafío adicional en su estimación. En este artículo, presentamos una estimación de la NAIRU tradicional para México y una medida alternativa que incluye la informalidad como un indicador de subutilización laboral. Encontramos que ambas medidas de la NAIRU y los indicadores de holgura del mercado laboral asociados siguen patrones similares a lo largo del tiempo. Sin embargo, la holgura estimada con el indicador que incluye la informalidad parece predecir las presiones inflacionarias con mayor precisión cuando la brecha de desempleo es cercana a cero.

The recent flattening of the Phillips curve has stimulated new empirical research and theoretical discussions regarding the nonlinear nature of the changes in the parameters. The objective of the present paper is twofold: to detect the relevant type of the implied nonlinearity and look for some general model capable of generating a Phillips curve mimicking the empirical one. We find evidence of a convex US price Phillips curve, from 1961 q1 to 2019 q4, assessed both by piecewise and threshold models. The result presents some degree of novelty regarding the role of supply shocks and model-specific convexities; in addition, it supports the use of a regime-switching macro system. The latter accomplishes three tasks. It can generate a Phillips curve resembling its empirical counterparts; it creates a medium-run endogenous cycle where unemployment is not a NAIRU; finally, it opens new perspectives on economic policy issues.

In this note, we argue that a considerable part of the explanation for the benign wage growth in the advanced world is the rise in underemployment. In the years after 2008 the unemployment rate understates labour market slack. Underemployment is more important than unemployment in explaining the weakness of wage growth in the UK. The Phillips curve in the UK has now to be rewritten into wage underemployment space. Underemployment now enters wage equations while the unemployment rate does not. There is every reason to believe that the NAIRU has fallen sharply since the Great Recession. In our view the NAIRU in the UK may well be nearer to 3 per cent, and even below it, than around 5 per cent, which other commentators including the MPC and the OBR believe.

Low inflation was once welcomed by both policymakers and the public. However, Japan’s experience during the 1990s changed the consensus of economists and central banks around the world regarding prices. Facing deflation and the zero-interest bound at the same time, the Bank of Japan had difficulty conducting an effective monetary policy, making Japan’s stagnation unusually prolonged. The too-low inflation that concerns central banks today translates into the “Phillips curve puzzle.” In the United States and Japan, in the course of the recovery from the Great Recession after the 2008 Global Financial Crisis, the unemployment rate had steadily declined to a level commonly regarded as lower than the natural rate or NAIRU. However, inflation remained low. In this paper, we consider a minimal model of the dual labor market to jointly investigate how the different factors affecting the structural evolution of the labor market have contributed to the observed flattening of the Phillips curve. We find that the level of bargaining power of workers, elasticity of the supply of labor to wage in the secondary market, and composition of the workforce are the main factors jointly explaining the evidence for Japan.

We address the question posed in the title of this paper by investigating recent developments in the literature that estimates the NAIRU. A necessary condition for the existence of a NAIRU is dynamic homogeneity: the Phillips curve should be homogeneous of degree one in lagged and/or expected inflation. But contemporary approaches to estimating the NAIRU typically assume rather than test for dynamic homogeneity, thus assuming (rather than testing for) the existence of a NAIRU. We argue that these developments remove the NAIRU from the domain of testable hypotheses and transform the concept into an article of faith. This does not constitute scientific progress.

The NAIRU, the unemployment rate consistent with a constant rate of inflation, is estimated, in this paper, as a parameter allowed to vary over time. Value is determined in an econometric model where the inflation rate depends on its past values, demand and supply shocks. The NAIRU estimated for the GDP deflator varies over the past forty years within 5.4 to 6.5 percent; its estimated value for the most recent quarter (1996:Q2) is 5.6 percent. The NAIRU has declined in recent years in response to global competition, immigration, other factors weakening labor's bargaining position, and the rapidly declining prices of computers and other electronics.