Why is Unemployment so High At Full Capacity? The Persistence of Unemployment, the Natural Rate, and Potential Output in the Federal Republic of Germany

October 1, 1990

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Thomas Krueger, and David T. Coe Why is Unemployment so High At Full Capacity? The Persistence of Unemployment, the Natural Rate, and Potential Output in the Federal Republic of Germany, (USA: International Monetary Fund, 1990) accessed September 30, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Labor, Potential output, Production, Real wages, Unemployment, Unemployment rate, Wages

Keywords: Aggregate wage, Developments in the FRG, Estimation result, Inflation equation, Phillips curve, Potential output, Real wages, Replacement ratio, Reservation wage, Unemployment, Unemployment rate, Wage determination, Wage inflation, Wages, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1990/101
Stock No:

WPIEA1011990
ISBN:

9781451948486
ISSN:

1018-5941

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