NAWRU and potential output in France

This article presents theory-consistent estimates of nonaccelerating wage rate of unemployment (NAWRU) and potential output in France. These estimates are obtained from an unobserved-components system approach combining a wage-Phillips curve and an Okun law's relationship. By applying the Apel and Jansson (1999) specification, the potential output and the NAWRU are both treated as unobserved stochastic processes and estimated simultaneously. In order to control the effect on wage setting of reductions in employers' social security contributions (SSC), we construct and add in the wage-Phillips curve an index of SSC exemptions. According to the results, from the mid-1990s, and especially over the years 2000-2004, the estimated NAWRU is consistent with this period of labour cost moderation and reductions in employer social security contributions.