A Theory of the Natural Unemployment Rate and the Duration of Employment / Robert E. Hall.

Format:

Book

Author/Creator:

Hall, Robert E.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0251.

NBER working paper series no. w0251

Language:

English

Subjects (All):

Unemployment--Mathematical models.

Unemployment.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1978.

Cambridge, Mass. : National Bureau of Economic Research, 1978.

Summary:

In this paper, a theory of the natural or equilibrium rate of unemployment is built around a theory of the duration of employment. Evidence is presented that most unemployed workers became unemployed because their previous jobs came to an end; only a minority are on temporary layoff or have just entered the labor force. Thus, high-unemployment labor markets are generally ones where jobs are brief and there is a large flow of newly jobless workers. The model of the duration of employment posits that employment arrangements are the efficient outcome of the balancing of workers' and employers' interests about the length of jobs. Full equilibrium in the labor market also requires that the rate at which unemployed workers find new jobs be efficient. The factors influencing the resulting natural unemployment rate are discussed. Under plausible assumptions, the natural rate is independent of the supply or demand for labor. Only the costs of recruiting, the costs of turnover to employers, the efficiency of matching jobs and workers, and the cost of unemployment to workers are likely to influence the natural rate of unemployment strongly. Since these are probably stable over time, the paper concludes that fluctuations in the natural unemployment rate are unlikely to contribute much to fluctuations in the observed unemployment rate.

Notes:

Print version record

July 1978.