Unemployment in Britain: Some more Questions

| Publication date: 23 Apr 2007 | NIESR Author(s): Kirby, S | JEL Classification: C22; E24; J60 | NIESR Discussion Paper Number: 293

Recent time series evidence favouring a supply-side interpretation of long-run unemployment in the UK is based on the finding of cointegration between unemployment and wage pressure variables. We show that this is necessary but not sufficient. The key assumptions in recent work, that a single relation exists between unemployment and wage pressure variables and that the causality is from these variables to unemployment, both appear to be invalid. In the light of this, and evidence of its serious parameter instability, this model of long-run UK unemployment seems flawed.

Keyword tags: 
unemployment, cointegration, supply-side
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