ABSTRACT
In previous chapters we have considered various aspects of labour market dynamics. In chapter two we examined the flows to and from the stock of unemployed and their relation to the duration of unemployment. In the last chapter considerable emphasis was given to the outflow from unemployment to employment and to the determinants of that flow. The relationship of the stock to these flows has also been considered and in chapter three an equilibrium relationship between the stocks of unemployment and unfilled vacancies was also derived. That relationship can be derived for an individual labour market which is considered in isolation from other markets or for the economy as a whole. ( 1 ) In this and the next chapter we will examine the latter by considering alternative macroeconomic approaches to the stock of unemployment. Particular attention will be paid to non-natural unemployment which we defined in chapter three as the difference between actual unemployment and the market clearing or ‘natural’ level of unemployment (U-https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780429422935/6f6ebc57-196a-45df-af33-ef277a806334/content/us1.tif"/> in Figure 3.4). In this and the next chapter we will effectively assume that the inflow, acceptance and offer probabilities remain constant so that changes in the stock of unemployment will mirror changes in the vacancy rate. In other words we will examine different positions on the flow equilibrium VU curve. This ignores the flow disequilibrium adjustment process around the VU curve. We will instead concentrate attention on labour market disequilibrium in the sense of a stock of unemployment different from the natural rate (stock disequilibrium). In chapters seven and eight, changes in acceptance and offer probabilities are considered principally from the point of view of their impact on the natural rate.
