Is there a NAIRU in Norway?

Abstract

Unemployment in Norway stayed at a rather low level both in the sixties and the seventies. In the same period Norwegian manufacturing industries lost competitiveness. A lower rate of unemployment than the equilibrium rate, which misleadingly often is called the nonaccelerating inflation rate of unemployment (NAIRU) may be an important reason for this. During the eighties there was considerably higher unemployment while the loss in competitiveness continued. This may indicate an outward shift in the Phillips curve, implying an increase in the equilibrium rate. Two interpretations of a rising equilibrium rate have been offered in the economic literature. The "structuralists" emphasize increasing structural problems in the economy. The "hysteresis" approach posits an equilibrium rate that automatically follows in the path of the actual rate of unemployment. This paper investigates the existence of rising structural problems and hysteresis effects in the Norwegian labour market.