Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Explaining European Unemployment: Testing the NAIRU Theory and a Keynesian Approach
Abstract: The aim of the paper is to contrast and test the NAIRU
theory and the Keynesian theory of unemployment econometrically. For the
former, wage push variables are key in explaining the rise of European
unemployment, for the latter accumulation is. The theories are tested using
time series data for Germany, France, Italy, the UK and the USA, using the
seemingly unrelated regression method (SUR). Unemployment benefits, union
density and the tax wedge were used as wage push variables, and the growth
of business capital stock as the accumulation variable. The NAIRU
specification performed poorly, with only the tax wedge having a positive
effect on unemployment as predicted. The Keynesian approach was more
successful, with accumulation being statistically significant in all
countries. Moreover, the tax wedge and accumulation are fairly robust to
changes in the specification and can be pooled across countries.
Keywords: unemployment; NAIRU; Keynesian Theory; labour market flexibility; accumulation; (follow links to similar papers)
JEL-Codes: E24; (follow links to similar papers)
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