THE NATURAL RATE: AN ATTRACTOR FOR ACTUAL UNEMPLOYMENT, OR AN ATTRACTEE?

This article reviews the contributions of Richard Layard, Stephen Nickell and Richard Jackman, The Unemployment Crisis, Oxford U.P., 1994; and Edmund S. Phelps, Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest and Assets, Harvard U.P. 1994 to the literature on the determinants of the equilibrium rate of unemployment. The key issue is whether the doctrine of monetary neutrality, which is the hallmark of the natural rate of unemployment hypothesis investigated in the two volumes under review, is tenable with regard to equilibrium unemployment. The conclusion is that the influence of actual on equilibrium unemployment violates the neutrality axiom, and that the natural rate is as much an attractee as attractor for actual unemployment.