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Journal of Economic Perspectives: Vol. 11 No. 1 (Winter 1997)

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Time to Ditch the NAIRU

Article Citation

Galbraith, James K. 1997. "Time to Ditch the NAIRU." Journal of Economic Perspectives, 11(1): 93-108.

DOI: 10.1257/jep.11.1.93

Abstract

The concept of a natural rate of unemployment, or nonaccelerating inflation rate of unemployment (NAIRU), remains controversial after twenty-five years. This essay presents a brief for no-confidence, in four parts. First, the theoretical case for the natural rate is not compelling. Second, the evidence for a vertical Phillips curve and the associated accelerationist hypothesis that lowering unemployment past the NAIRU leads to unacceptable acceleration of inflation is weak. Third, economists have failed to reach professional consensus on estimating the NAIRU. Fourth, adherence to the concept as a guide to policy has major social costs but negligible benefits.

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Authors

Galbraith, James K. (Johnson School of Public Affairs, U TX)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E31: Price Level; Inflation; Deflation

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