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Why is Unemployment so High At Full Capacity? The Persistence of Unemployment, the Natural Rate, and Potential Output in the Federal Republic of Germany
Author:
Mr. Thomas Krueger
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Mr. David T. Coe
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Series:
IMF Working Papers
Volume/Issue:
Volume 1990: Issue 101
Language:
English
Publication Date:
01 Oct 1990
DOI:
https://doi.org/10.5089/9781451948486.001
ISBN:
9781451948486
ISSN:
1018-5941
Pages:
40
Keywords:
WP; Phillips curve; replacement ratio; inflation equation; estimation result; aggregate wage; wage inflation; wage determination; developments in the FRG; reservation wage; Unemployment rate; Potential output; Wages; Unemployment; Real wages
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The empirical analysis indicates that in the Federal Republic the unemployed primarily influence the relationship between the level of real wages and productivity, rather than the growth of wages. This result suggests a distinction between an equilibrium natural rate of unemployment, which is estimated to have been 3-4 percent in the 1980s, and a quasi-equilibrium unemployment rate closer to actual rates of 7-8 percent. Corresponding to these two concepts of equilibrium unemployment, estimates are presented of alternative concepts of potential output that differ according to whether labor input is consistent with the quasi-equilibrium rate of unemployment or with the natural rate of unemployment.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund