OECD Economic Studies No. 5, Autumn 1985

The origins of high real interest rates

Paul Atkinson and Jean-Claude Chouraqui

During recent years real interest rates, both short- and long-term, have been high by historical standards in many OECD countries, regardless of the measure of expected inflation used to adjust nominal rates. A number of domestic factors which may have contributed to unusual upward pressure on interest rates, as well as international transmission aspects, are analysed, but none can be attributed a dominant role.

Substitution between different categories of labour, relative wages and youth unemployment

Daniel S. Hamermesh

Available research suggests that when the relative supply of women to the labour market increases, as it did in most developed countries in the 1960s and 1970s, the wage rate of young workers must fall relative to other wages if youth unemployment is not to rise. This paper discusses the evidence from related empirical studies and evaluates their research methods.

Nominal wages, the NAIRU and wage flexibility

David T. Coe

The historical determinants of nominal wages are analysed for eleven OECD economies, and consideration is given to the implications for future development of wages, and hence of inflation. There appears to be little risk of renewed inflationary pressures emanating from the labour market, because unemployment rates are currently (sometimes substantially) above estimates of the non-accelerating inflation rate of unemployment. Specific measures of wage flexibility are also derived; by any measure, Japan stands out as the country having the most flexible wages.

Profits and rates of return

James H. Chan-Lee and Helen Sutch

There was a widespread decline in profit rates from 1960 to 1982; in some countries, profit shares fell. In the 1970s these phenomena became general, accompanied by low rates of growth and capacity utilisation. This article examines profit trends and cycles in historical perspective, with attention to measurement problems. It discusses various concepts of profit and their economic significance. Inflation, the associated response of interest rates, the revaluation of assets and liabilities and the interaction of these effects with the tax system affect firms' financial profitability, while National Accounts profitability is important as a measure of productive efficiency in the economy.

Representing recent policy concerns in OECD's macroeconomic model

John Llewellyn and Pete Richardson

Over the past few years, a number of issues have demanded increasing attention by policymakers. These include the behaviour of financial markets, the effects of expectations, the interactions of OECD economies with the developing economies, and the determinants of supply-side performance. Analysis of these issues by the OECD Secretariat has progressively been incorporated into its world model, INTERLINK. This note describes, in a non-technical way, the main features and broad preliminary conclusions of this work prior to publication of more detailed technical studies of specific aspects.