ABSTRACT
In the previous chapter we have examined the determinants of the natural rate and the cyclical movements in these factors which lead to changes in https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780429422935/6f6ebc57-196a-45df-af33-ef277a806334/content/ust.tif"/>. We also considered at some length the acceptance probability (βt) and the supply side aspects of the inflow rate (αt). As a result it was possible to assess the contribution of supply side factors to the value of https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780429422935/6f6ebc57-196a-45df-af33-ef277a806334/content/ust.tif"/> we observe in Britain. In this chapter we will concentrate on the demand side forces which emanate from employers and which also, in principle, have an effect on the natural rate. This analysis will also suggest policies which will be considered in the concluding Chapter 9. The theory set out in Chapters 3 and 7 reveals two ways in which the natural rate of unemployment is influenced by employers assuming a given value of vacancies. Firstly, any change in the offer probability (Kt) will change the natural rate. Specifically, a secular fall in k t will cause a secular rise in https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780429422935/6f6ebc57-196a-45df-af33-ef277a806334/content/ust.tif"/>. Empirically we shall examine the basis for this interpretation of events in Britain. Secondly, any change in layoffs will affect the inflow rate. An increase in layoffs will increase the natural rate of unemployment via its effects on αt. In order to consider these issues we will adopt the framework suggested by Mortensen (1970) and outlined in the first part of Chapter 7 and also the employer search theory described in Chapter 3. Together this suggests a number of possible causes of changes in κt and αt. Initially we will concentrate on the offer probability and its determinant, the hiring standard.
