chapter
Can Stabilization Policy Increase the Equilibrium Unemployment Rate ?
ByE. J. Driffill
Pages 15

It is a notorious fact that the rate of unemployment has increased steadily – with fluctuations around a rising trend – in the U.K. over the postwar period and that most of this represents an increase in the “natural rate” of unemployment rather than being a disequilibrium phenomenon. The explanations that are offered for this increase in the natural rate include the effects of the social security system and the increased participation of workers in trade unions (Minford, 1982) and reductions in the rate of growth of productivity (Jackman and Layard, 1982). It has also been explained as a “ratchet effect” whereby unions bargain only on behalf of their (employed) members, and successive bargains reduce membership and progressively disenfranchise workers who become unemployed (Nickell, 1982).