Estimation of structural unemployment important, but complicated

Abstract

After the recession following the financial crisis, the US economy has already been growing for 7 years at an average pace of 2%, and the euro area, too, is witnessing a fourth consecutive year of growth. In both regions, the gradual acceleration of economic growth and the strengthening of the labour market have, however, taken place without the build-up of significant price and wage pressures. This raises the question as to how far the economy can still be from its potential output, thus highlighting the need to critically review estimates of the extent of spare capacity in the economy and on the labour market.