Unemployment Equilibria and Input Prices: Theory and Evidence from the United States

Alan A. Carruth; Mark A. Hooker; Andrew J. Oswald

doi:10.1162/003465398557708

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Unemployment Equilibria and Input Prices: Theory and Evidence from the United States

Alan A. Carruth¹; Mark A. Hooker²; Andrew J. Oswald³

¹ University of Kent · ² Federal Reserve Board of Governors · ³ University of Warwick

The Review of Economics and Statistics 1998

The paper develops an efficiency-wage model in which 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 postwar 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 that followed.

DOI: 10.1162/003465398557708
Volume: 80 (4)
Pages: 621-628
Language: en
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