Non-Accelerating-Inflation Rate of Unemployment (NAIRU) theory is a variant of the neoclassical natural rate of unemployment. As in original natural rate theory, NAIRU advocates believe that unemployment cannot be reduced below a certain level without sparking a continuous acceleration in inflation. Unlike the original natural rate theory, however, the NAIRU doctrine does not strictly define this position as “full employment.” The policy prescriptions of the natural rate and NAIRU theories are practically identical (namely, don’t try to reduce unemployment through demand-side measures, but instead attack unions and minimum
wages to allow labour markets to function more “efficiently”).
Definition