in, it doesn't just change our estimate of the latest value of the nairu. it can also affect the recent past. this ‘ end - point ’ problem means that our prior estimates will be revised. a year or so ago, we were saying that we thought the nairu was around 5 per cent. the point estimate at the time was rounding to 5 per cent. given the uncertainties in estimation, it is probably best to talk in round numbers. so that is what we did. with the benefit of the incoming data, not only has the estimate for the current value of the nairu changed, but so has that for the recent past ( graph 5 ). this sensitivity of the past to subsequent data is called the ‘ end - point ’ problem. it is a generic problem with many kinds of trend extraction procedures, and it is a reason to be cautious about over - interpreting the latest estimate. graph 5 interpreting the invisible the nairu is estimated to have declined over the past 40 years. simple observation of the data also supports this conclusion. but our usual methods for estimating the nairu don't tell us why that happened. they are statistical methods, so they are simply not designed to explain changes in the nairu, only to identify those movements. we must instead seek to understand the causes by using other information about the labour market, such as the composition of unemployment. one way to think about this question is to think of the nairu as capturing the types of unemployment that would remain, even when there is no spare capacity in the labour market and inflation is sustainably at target. for example, there would still be some frictional unemployment ; the people who are ‘ between jobs ’ for a short time. the short - term unemployment rate – the share of the labour force who have been unemployed for four weeks or less – should be a good proxy for this. short - term unemployment has declined slowly since the mid 1990s ( graph 6 ). this suggests that frictional unemployment may have declined and the labour market has become more efficient at matching workers and jobs. it isn't hard to imagine that the shift to online job advertising has had something to do with this. so there's one reason why the nairu might be lower nowadays. graph 6 the textbooks also talk about ‘ structural unemployment ’ as being part of the nairu. these are the people who for a variety of reasons cannot find any kind of job at prevailing wage rates. this might be because

, ‘ economic outlook ’, statement on monetary policy, august, pp 65 – 71. bis central bankers ’ speeches aggregate demand is expected to be broadly matched by lower growth of the economy ’ s productive capacity, which in turn follows from less growth in the labour force. while that is what we expect, there is considerable uncertainty about both the rate of population growth and its effects on spare capacity. an example might be helpful here. lower immigration may reflect a fall in the number of people coming to australia who have a relatively high propensity to participate in the labour force, such as new zealanders of prime working age. in that case, the implications for the economy ’ s productive capacity will be larger than if lower immigration was mostly due to fewer international students. it is not clear whether these two groups would have the same effect on demand : both need to feed, clothe and house themselves, but both have different incomes and different propensities to spend and save. another source of uncertainty affecting the outlook for supply is productivity growth. that is especially hard to forecast at any time. what signal can we take from recent developments? not much, is my sense. we know that the lower - than - expected population growth will ( by itself ) lead to a downward revision to employment growth. for the given growth in gdp that has been recorded of late, this implies that existing estimates of recent productivity growth are somewhat understated. in other words, they are likely to be revised a bit higher when the abs revise employment growth. however, recent measures of productivity growth tend to provide a very noisy signal of future productivity growth. so we haven ’ t changed our view on the outlook for productivity growth. we assume that it will be around its historical average. the role of wage growth what about relevance of the low growth of wages for the economic outlook? it is reasonable to be concerned that low wage growth might weigh on labour income thereby weakening the outlook for aggregate demand. but that is an incomplete description of a more complicated process. in particular, wages tend to lag the business cycle, not lead it. this makes sense for at least two reasons. first, many wages are determined by fixed - term agreements. so they take time to adjust to changing conditions in the labour market. second, even after growth of output picks up, it can take time to absorb spare capacity in the labour market, and hence for wage pressures to build. given this, the low wage growth of recent years is