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Unemployment equilibria and input prices: theory and evidence from the United States

By Alan A. Carruth, Mark A. Hooker and Andrew J. Oswald

Abstract

This paper develops an efficiency-wage model where input prices affect the equilibrium rate of unemployment. We show that a simple framework based on only two prices (the real price of oil and the real rate of interest) is able to explain the main post-war movements in the rate of U.S. joblessness. The equations do well in forecasting unemployment many years out-of-sample, and provide evidence that the oil-price spike associated with Iraq’s invasion of Kuwait appears to be a component of the “mystery” recession which followed

Topics: HD
Publisher: University of Warwick, Department of Economics
Year: 1998
OAI identifier: oai:wrap.warwick.ac.uk:1661

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