The Concept, Policy Use and Measurement of Structural Unemployment

The structural rate of unemployment and associated non-accelerating inflation rate of unemployment (the NAIRU) are of major importance to the analysis of macro and structural economic developments, although in practice these concepts are not well defined and there is considerable uncertainty and controversy concerning their measurement and policy use.The present paper reviews a range of conceptual and analytical issues and related empirical studies to examine the usefulness and limitations of such concepts.A reduced-form Phillips curve approach is found the most suitable conceptual framework for representing the NAIRU as currently used by the OECD in its policy analysis and surveillance work.Three distinct classes of NAIRU concept are identified, distinguished by the time-frame in which they are defined, which map directly into the broad requirements for macro and structural policy analysis.In line with a number of recent empirical studies, this general approach is applied across the 21 OECD member countries, using methods which combine the estimation of reduced-form Phillips curve equations for each country using alternative filtering methods which allow the identification of time-varying NAIRU indicators.Corresponding sets of Phillips curve and NAIRU estimates are reported and comparisons are made with previous OECD NAIRU estimates.These estimates are also used to illustrate the importance of the conceptual framework for the analysis of recent inflation developments and monetary policies.Overall, Kalman filter methods are found to provide the most satisfactory results and are therefore chosen as the preferred basis for future development of OECD NAIRU indicators.