Unemployment equilibria and input prices: theory and evidence from the United States
Carruth, Alan A. , Hooker, Mark A. and Oswald, Andrew J. (1998) Unemployment equilibria and input prices: theory and evidence from the United States. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).
WRAP_Carruth_twerp_496.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
This paper develops an efficiency-wage model where input prices affect the equilibrium rate of unemployment. We show that a simple framework based on only two prices (the real price of oil and the real rate of interest) is able to explain the main post-war movements in the rate of U.S. joblessness. The equations do well in forecasting unemployment many years out-of-sample, and provide evidence that the oil-price spike associated with Iraq’s invasion of Kuwait appears to be a component of the “mystery” recession which followed.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HD Industries. Land use. Labor|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Unemployment -- United States, Unemployment -- Mathematical models, Interest rates -- United States, Petroleum products -- Prices -- United States, United States -- Economic conditions -- 20th century|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||25|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC), Leverhulme Trust (LT), London School of Economics and Political Science (LSE)|
|References:||Akerlof, George A., and Janet L. Yellen, “The Fair Wage-Effort Hypothesis and Unemployment,” Quarterly Journal of Economics 105 (1990), 255-83. Bean, Charles R., “European Unemployment: A Survey,” Journal of Economic Literature 32 (1994), 573-619. Blanchflower, David G., and Andrew J. Oswald, The Wage Curve (Cambridge: MIT Press, 1994). Bohi, Douglas R., Energy Price Shocks and Macroeconomic Performance (Washington D.C.: Resources for the Future, 1989). Bowles, Samuel, “The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models,” American Economic Review 75 (1985), 16-36. Bruno, Michael, and Jeffrey Sachs, “Input Price Shocks and the Slowdown of Economic Growth: The Case of UK Manufacturing,” Review of Economic Studies 49 (1982), 679-705. Burbidge, John, and Alan Harrison, “Testing for the Effects of Oil-Price Rises Using Vector Autoregressions,” International Economic Review 25 (1984), 459-484. Calvo, Guillermo, “Quasi-Walrasian Theories of Unemployment,” American Economic Review 69 (1979), 102-107. Carruth, Alan A., Mark A. Hooker, and Andrew J. Oswald, “Unemployment, Oil Prices, and the Real Interest Rate: Evidence from Canada and the U.K.,” in Louis N. Christofides, E. Kenneth Grant, and Robert Swidinsky (eds.), Aspects of Labour Market Behaviour: Essays in Honour of John Vanderkamp (Toronto: University of Toronto Press, 1995). Cochrane, John H., “Shocks,” Carnegie-Rochester Conference Series 41 (1994), 295-364. Engle, Robert F. and C.W.J. Granger, “Co-integration and Error Correction: Representation, Estimation and Testing,” Econometrica 55, (1987), 251-276. Engle, Robert F. and C.W.J. Granger (eds.), Long-Run Economic Relationships (Oxford: Oxford University Press, 1991). Ferderer, J.Peter, “Oil Price Volatility and the Macroeconomy,” Journal of Macroeconomics 18 (1996), 1-16. Hamilton, James D., “Oil and the Macroeconomy since World War II,” Journal of Political Economy 91 (1983), 228-248. _____, “A Neoclassical Model of Unemployment and the Business Cycle,” Journal of Political Economy 96 (1988), 593-617. _____, “Analysis of the Transmission of Oil Price Shocks Through the Macroeconomy,” UCSD Manuscript (1996). Hooker, Mark A., “What Happened to the Oil Price-Macroeconomy Relationship?,” Journal of Monetary Economics 38 (1996), 195-213. _____, “Exploring the Robustness of the Oil Price-Macroeconomy Relationship,” FEDS Working Paper No. 1997-56, Federal Reserve Board (1997). Jorgenson, Dale W., “The Role of Energy in Productivity Growth,” American Economic Review 74 (1984), 26-30. Keane, Michael P., and Eswar S. Prasad, “The Employment and Wage Effects of Oil Price Changes: A Sectoral Analysis,” Review of Economics and Statistics 78 (1996), 389-400. Kim, In-Moo, and Prakash Loungani, “The Role of Energy in Real Business Cycle Models,” Journal of Monetary Economics 29 (1992), 173-189. Layard, Richard, Stephen J. Nickell, and Richard Jackman, Unemployment: Macroeconomic Performance and the Labor Market (Oxford: Oxford University Press, 1991). Lee, Kiseok, Shawn Ni, and Ronald A. Ratti, “Oil Shocks and the Macroeconomy: The Role of Price Variability,” Energy Journal 16 (1995), 39-56. MacKinnon, James, “Critical Values for Cointegration Tests,” in Engle, Robert F., and C.W.J. Granger (eds.), Long-Run Economic Relationships (Oxford: Oxford University Press, 1991). McNees, Stephen K., “The 1990-91 Recession in Historical Perspective,” New England Economic Review January/February 1992, 3-22. Miller, Marcus H., “Can a Rise in Import Prices be Inflationary and Deflationary?,” American Economic Review 66 (1976), 501-519. Mork, Knut Anton, “Oil and the Macroeconomy When Prices Go Up and Down: An Extension of Hamilton’s Results,” Journal of Political Economy 91 (1989), 740-744. Nickell, Stephen J., “Unemployment: A Survey,” Economic Journal 100 (1990), 391-439. Oswald, Andrew J., “A Conjecture on the Explanation for High Unemployment in the Industrialized Nations: Part I,” Working Paper No. 475, University of Warwick (1996). Phelps, Edmund S., “Consumer Demand and Equilibrium Unemployment in a Working Model of the Customer-Market Incentive-Wage Economy,” Quarterly Journal of Economics CVII (1992), 1003-1032. _____, Structural Slumps (Cambridge: Harvard University Press, 1994). Phillips, A. W. “Stabilization Policy and the Time Form of Lagged Responses,” Economic Journal 67 (1957), 265-277. Rasche, Robert H., and John A. Tatom, “Energy Price Shocks, Aggregate Supply and Monetary Policy: The Theory and the International Evidence,” Carnegie-Rochester Conference Series 14 (1981), 9-93. Rotemberg, Julio J., and Michael Woodford, “Imperfect Competition and the Effects of Energy Price Increases on Economic Activity,” Journal of Money, Credit and Banking 28 (1996), 549-77. Rowthorn, R.E., “Conflict, Inflation and Money,” Cambridge Journal of Economics 1 (1977), 215-239. Sargan, John Denis, “Wages and Prices in the United Kingdom: A Study in Econometric Methodology,” in P.E. Hart, G. Mills, and J.K. Whitaker, (eds.), Econometric analysis for National Planning (London: Butterworths, 1964). Shapiro, Carl., and Stiglitz, Joseph E., “Equilibrium Unemployment as a Worker Discipline Device,” American Economic Review 74 (1984), 433-444. Sims, Christopher A., “Macroeconomics and Reality,” Econometrica 48 (1980), 1-48.|
Actions (login required)