Bài giảng Labour Market Economics - Chapter 19 Wage Changes, Price Inflation and Unemployment

Chapter NineteenWage Changes, Price Inflation and Unemployment Created by: Erica Morrill, M.Ed Fanshawe College1© 2002 McGraw-Hill Ryerson Ltd.Chapter FocusThe connection between aggregate wage changes and unemployment rateThe relationship between inflation and unemploymentAnti-inflationary policiesPersistence of unemploymentWage rigidity2© 2002 McGraw-Hill Ryerson Ltd.Determinants of Wage ChangesUnemployment RateExpected InflationUnanticipated InflationProductivity GrowthOther Factors3© 2002 McGraw-Hill Ryerson Ltd.Unemployment RatePhillips Curve negative relationship between unemployment and inflation rate.Lipseyunemployment is overall excess of demand or supplyrate of wage change is a function of this excess4© 2002 McGraw-Hill Ryerson Ltd.Figure 19.1 a Wage Changes, Excess Demand and UnemploymentWNDisequilibrium in individual labour marketsWNSSWa*DDWb*WaDaSaWbSbDb5© 2002 McGraw-Hill Ryerson Ltd.Figure 19.1 b Wage Changes, Excess Demand and UnemploymentThe relationship between wage changes and excess demand .Wi .Wa .W1b .WbDi-Si SiDb-Sb SbDa-Sa Sa6© 2002 McGraw-Hill Ryerson Ltd.Figure 19.1 c Wage Changes, Excess Demand and UnemploymentU*V*U**V**The relationship between unemployment and job vacanciesUV7© 2002 McGraw-Hill Ryerson Ltd.Figure 19.1 d Wage Changes, Excess Demand and UnemploymentU*The relationship between aggregate excessdemand and unemploymentUD-S S8© 2002 McGraw-Hill Ryerson Ltd.Figure 19.1 e Wage Changes, Excess Demand and UnemploymentU*The relationship between wage changes and unemploymentU .W9© 2002 McGraw-Hill Ryerson Ltd.Natural UnemploymentU* is independent of UMore than one unemployment rate at which the economy is in macroeconomic equilibriumIncrease in U* shifts the Phillips curve upwardlarger wage increases at each rateincreased excess demand10© 2002 McGraw-Hill Ryerson Ltd.Explanation of the Phillips CurveTwo relationshipspositive relationship between wage changes and excess demandinverse relationship between excess demand and the unemployment rate11© 2002 McGraw-Hill Ryerson Ltd.Expected InflationWages will adjust upward by the amount of the expected inflationSupply and demand functions shift upward by the anticipated increase Firm’s profits and workers’ utility depend on the real wage in price level require an equal  in the nominal wage at each level of employment to maintain the real wage12© 2002 McGraw-Hill Ryerson Ltd.Figure 19.2 Wage Changes and Expected InflationWNWNWa*Wb*Wa**Na*WbNa*D(p0)S(p0)D(pe1)S(pe1)WaS(p0)D(p0)S(pe1)D(pe1)Wb**13© 2002 McGraw-Hill Ryerson Ltd.Figure 19.3 Wage Changes, Unemployment, and Expected InflationU*U .W10d.pe=10%ae5b.pe=5%c.pe=014© 2002 McGraw-Hill Ryerson Ltd.Catch-Up for Unanticipated InflationActual changes in price level may differ from the expected changeIf inflation is greater employees will desire “catch-up” payIf prices or other market wages are lower the employer will:adjust wages downward increase wages less quickly in the future 15© 2002 McGraw-Hill Ryerson Ltd.Figure 19.4 Wage Changes and Unanticipated InflationWNW0D(p1e)S(p1e)W1*W1aD(p1a)S(pa1)S1aD1a16© 2002 McGraw-Hill Ryerson Ltd.Productivity GrowthUltimate concern is real wageProductivity growth influences wage negotiations Offsetting factorsdisplacement effectproduct demand effecttechnical changesProductivity gains may lower real wages17© 2002 McGraw-Hill Ryerson Ltd.Other Determinants of Money Wage ChangesControl for factors given the data set studiedProxy for other variables which data was not availablerate of increase in wages in USprofitschanges in unionizationmarket imperfectionsunusual eventspublic Policy18© 2002 McGraw-Hill Ryerson Ltd.Price Inflation and UnemploymentWage changes influence prices through their effect on labour costsHold productivity growth and expected inflation constant Price inflation and unemployment are inversely related19© 2002 McGraw-Hill Ryerson Ltd.10.pe=10%5.pe=5%Figure 19.5 The Relationship between Inflation and UnemploymentU*U .Pab.pe=0gcedfh20© 2002 McGraw-Hill Ryerson Ltd.Unemployment PersistenceExplanations for persistent unemployment include:insider-outsider models of wage settingthe loss of physical or human capital during economic downturnsfeatures of the unemployment insurance system21© 2002 McGraw-Hill Ryerson Ltd.Anti-Inflation PolicyFull Employment and Price StabilityDemand RestraintEnhancing CredibilityIncome PoliciesEncouraging Wage and Price Flexibility22© 2002 McGraw-Hill Ryerson Ltd.End of Chapter NineteenChapter 19-23© 2002 McGraw-Hill Ryerson Ltd.