The Phillips Curve and Long-Term Unemployment
By Ricardo Llaudes. Social Science Research Network, 2005
117 citations recorded by the source corpus.
This paper studies the role of long-term unemployment in the determination of prices and wages. Labor market theories such as insider-outsider models predict that this type of unemployed are less relevant in the wage formation process than the newly unemployed. This paper looks for evidence of this behavior in a set of OECD countries. For this purpose, I propose a new specification of the Phillips Curve that contains different unemployment lengths in a time-varying NAIRU setting. This is done by constructing an index of unemployment that assigns different weights to the unemployed based on the length of their spell. The results show that unemployment duration matters in the determination of prices and wages, and that a smaller weight ought to be given to the long-term unemployed. This modified model has important implications for the policy maker: It produces more accurate forecasts of inflation and more precise estimates of the NAIRU. JEL Classification: C22, E31, E50, J64
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/189384a23c892a95f880016aded4b6357f9350f6
How researchers see this paper
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In Economics and Econometrics
- Olivier Coibion
- Y. Gorodnichenko
- Sandeep Mazumder
- Laurence Ball
- Michael Weber
- V. Ramey
- Nicholas Barberis
- Raphael S. Schoenle
Citations in the corpus
- Inflation Dynamics and the Great Recession (2011, unknown): “For a number of countries, Llaudes (2005) finds that long-term unemployment (the fraction of the labor force unemployed for more than 26 weeks) puts less downward pressure on inflation than short-term unemployment.”
- Is The Phillips Curve Alive and Well After All? Inflation Expectations and the Missing Disinflation (2013, background): “Explanations based on recent labor market developments, such as long-term unemployed having smaller effects on wages (Llaudes 2005) or downward wage rigidity preventing wages from falling as much as in prior downturns (Daly, Hobijn and Lucking 2012), imply that the missing disinflation in prices…”
- A Phillips Curve with Anchored Expectations and Short-Term Unemployment (2015, background): “Llaudes (2005) shows that this Phillipscurve specification fits the data for a number of countries.”