The Estimation of the NAIRU and the Effect of Permanent Sectoral Employment Reallocation. The Italian Evidence.

This paper analyses the NAIRU making use of a cointegrated VAR and of Italian labour market data. We show that a cointegrated VAR represents a statistically adequate (using Aris Spanos's terminology) approach to the estimation of the NAIRU. This is an effective way to overcome several problems affecting standard structural approach. In particular the paper investigates whether permanent employment shift across Italian industrial sector [measured by the Neumann and Topel (1991)'s employment-based dispersion index] has an effect on unemployment. Among the findings of this paper we emphasize that sectoral employment shifts affect unemployment both in the long- and in the short-term. Moreover, we find that the effect of sectoral reallocation on the unemployment rate occurs only after some delay.