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The NRU And The Evolution Of Regional Disparities In Spanish Unemployment

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Executive Summary

On both theoretical and empirical grounds, this paper provides evidence that refutes the Natural Rate of Unemployment (NRU) hypothesis as an explanation of the evolution of regional disparities in the unemployment rate. The authors first present their analytical framework, which follows the Chain Reaction Theory (CRT) of unemployment and argues that a system of interactive labour market equations, rather than a single-equation unemployment rate model, is better equipped to accommodate unemployment dynamics, and due to the interplay of frictions and growth in labour markets, the NRU ceases to be an attractor of the unemployment rate time path.

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