Roger Farmer questions the existence of a stable natural rate of unemployment in this post to the Vox Blog.

He focuses his attention on the Beveridge Curve which tracks three macroeconomic variables - unemployment, inflation and the level of unfilled job vacancies. He argues that the religious adherence to a natural rate concept (an equilibrium rate of unemployment to which an economy gravitates over time) has little empirical support. Each and every recession in the USA has had a permanent effect on the unemployment rate - he supports the idea of hysteresis in the labour market.

“When households feel wealthy, that belief is self-fulfilling. Consumers spend a lot, firms hire workers, and the economy comes to rest at a point on the Beveridge curve with low unemployment and high vacancies. When the values of houses, factories, and machines fall, households spend less, firms lay off workers, and the economy comes to rest at a point on the Beveridge curve with high unemployment and low vacancies. Both situations – and anything in between – are zero-profit equilibria. High inflation makes the trade-off between unemployment and vacancies less favourable, and in the steady state, any inflation rate is consistent with any unemployment rate.”

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