Unemployment And Inflation
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Unemployment And Inflation as PDF for free.
More details
- Words: 3,081
- Pages: 115
Unemployment and Inflation
Unemployment and Inflation
Nature of Unemployment
NATURE OF UNEMPLOYMENT ■
The meaning of ‘unemployment’ defining the unemployment rate ✜ claimant unemployment ✜
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
NATURE OF UNEMPLOYMENT ■
The meaning of ‘unemployment’ defining the unemployment rate ✜ claimant unemployment ✜
✦ do
claimant statistics give a true picture of unemployment?
NATURE OF UNEMPLOYMENT ■
The meaning of ‘unemployment’ defining the unemployment rate ✜ claimant unemployment ✜
✦ do
claimant statistics give a true picture of unemployment?
✜
standardised unemployment (ILO/OECD)
NATURE OF UNEMPLOYMENT ■
The duration of unemployment ✜
inflows to and outflows from the stock of unemployment
Flows into and out of unemployment From outside the labour force
From jobs
•School/college leavers •People returning to the labour force (e.g. after raising children)
•People made redundant •People sacked •People temporarily laid off •People resigning
INFLOWS (per period of time)
UNEMPLOYMENT
Flows into and out of unemployment From outside the labour force
From jobs
•School/college leavers •People returning to the labour force (e.g. after raising children)
•People made redundant •People sacked •People temporarily laid off •People resigning
INFLOWS (per period of time)
UNEMPLOYMENT To jobs
OUTFLOWS (per period of time)
•People taking new jobs •People returning to old jobs who had been temporarily laid off
To outside the labour force
•People who have become disheartened and give up looking for a job •People who have reached retirement age •People who temporarily withdraw from labour force (e.g. to raise a family) •People who emigrate •People who die
NATURE OF UNEMPLOYMENT ■
The duration of unemployment ✜
inflows to and outflows from the stock of unemployment ✦ effects
on the duration of unemployment
NATURE OF UNEMPLOYMENT ■
The duration of unemployment ✜
inflows to and outflows from the stock of unemployment ✦ effects
✜
on the duration of unemployment
the phase of the business cycle
Unemployment rates in selected industrial countries UK
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
Japan
USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
Japan
USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
Japan OECD
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
Japan OECD
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
NATURE OF UNEMPLOYMENT ■
■
The composition of unemployment ✜
by geographical region
✜
by sex
✜
by age
✜
by ethnic groups
The costs of unemployment ✜
to the unemployed themselves
✜
to family and friends
✜
to society at large
Unemployment and Inflation
Causes of Unemployment
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
Disequilibrium unemployment
Average (real) wage rate
ASL
ADL O No. of workers
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
✜
equilibrium in the model
Disequilibrium unemployment
Average (real) wage rate
ASL
We
ADL O
Qe No. of workers
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
✜
equilibrium in the model
✜
disequilibrium unemployment
Disequilibrium unemployment
Average (real) wage rate
ASL
W2
B
A
We
ADL O
Q2
Q1 No. of workers
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
✜
equilibrium in the model
✜
disequilibrium unemployment
✜
equilibrium unemployment
Equilibrium unemployment
Average (real) wage rate
ASL
e We
ADL O
Qe No. of workers
Average (real) wage rate
Equilibrium unemployment ASL N
e We
d
ADL O
Qe
Q2
No. of workers
Equilibrium and disequilibrium unemployment
Average (real) wage rate
ASL
e We
ADL O
Qe No. of workers
Equilibrium and disequilibrium unemployment
Average (real) wage rate
ASL Disequilibrium unemployment
W2
b
a e
We
ADL O No. of workers
Equilibrium and disequilibrium unemployment
Average (real) wage rate
ASL Disequilibrium unemployment
W2
b
a
N
c
e We
Equilibrium unemployment
ADL O No. of workers
CAUSES OF UNEMPLOYMENT ■
Disequilibrium unemployment ✜
real-wage (classical) unemployment
Real-wage unemployment
Average (real) wage rate
ASL
W1
b
b’
a
We ADL 2 ADL O
Q2
Qe Q1 No. of workers
CAUSES OF UNEMPLOYMENT ■
Disequilibrium unemployment ✜
real-wage (classical) unemployment
✜
demand-deficient (cyclical) unemployment
Demand-deficient unemployment
Average (real) wage rate
ASL
W1 W2
ADL 1 ADL 2 O
Q2
Q1 No. of workers
CAUSES OF UNEMPLOYMENT ■
Disequilibrium unemployment ✜
real-wage (classical) unemployment
✜
demand-deficient (cyclical) unemployment
✜
unemployment arising from a growth in the labour supply
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
Average duration of unemployment
Wage rate
Wage rate offered (Wo)
Wage rate acceptable to worker (Wa) O
tl Period of search
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing
pattern of demand
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing ✦ regional
pattern of demand
unemployment
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing ✦ regional
pattern of demand
unemployment
✦ technological
unemployment
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing ✦ regional
pattern of demand
unemployment
✦ technological
✜
unemployment
seasonal unemployment
Unemployment and Inflation
Aggregate Demand, Aggregate Supply and the Price Level
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
Aggregate demand and aggregate supply
Price level
Why the AD curve slopes downwards ✦
foreign trade effect
✦
real balance effect
✦
interest rate effect
The shape of the AD curve Shifts in the AD curve
AD O National output
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
Aggregate demand and aggregate supply
Price level
AS
■
short-run and long-run AS curves
■
the shape of the AS curve
■
shift in the AS curve
O National output
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
■
Equilibrium
Aggregate demand and aggregate supply
Price level
AS
Pe P2
b
a AD
O National output
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
■
Equilibrium ✜
shifts in the AD curve
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
■
Equilibrium ✜
shifts in the AD curve
✜
shifts in the AS curve
Unemployment and Inflation
Inflation
INFLATION ■
Defining inflation
■
International experience of inflation
Inflation rates for selected countries (average % per annum)
Inflation rates for selected countries (average % per annum)
Inflation rates for selected countries (average % per annum)
Inflation rates in selected industrial countries
26
UK
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
UK
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
UK EU 15
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
UK EU 15
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
OECD
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
OECD
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
INFLATION ■
The costs of inflation ✜
redistribution
✜
uncertainty
✜
balance of payments
✜
resources used to cope with inflation
INFLATION ■
Types of inflation ✜
demand pull
Demand-pull inflation
Price level
AS
P1
AD1 O
Q1 National output
Demand-pull inflation
Price level
AS
P1
AD2 AD1 O
Q1 National output
Demand-pull inflation
Price level
AS
P2 P1
AD2 AD1 O
Q1
Q2
National output
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
Cost-push inflation
Price level
AS1
P1
AD O
Q1 National output
Cost-push inflation AS1
Price level
AS2
P1
AD O
Q1 National output
Cost-push inflation
Price level
AS2
AS1
P2 P1
AD O
Q2
Q1 National output
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
The interaction of demand-pull and cost-push inflation
Price level
AS1
P1
AD1 O National output
The interaction of demand-pull and cost-push inflation
Price level
AS2
AS1
P2 P1
AD2 AD1 O National output
The interaction of demand-pull and cost-push inflation AS3 AS
Price level
2
AS1
P3
P2
AD3
P1
AD2 AD1 O National output
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
INFLATION ■
■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
Policies to tackle inflation
INFLATION ■
■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
Policies to tackle inflation ✜
demand-side policies
INFLATION ■
■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
Policies to tackle inflation ✜
demand-side policies
✜
supply-side policies
Unemployment and Inflation
Relationship between Unemployment and Inflation
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
■
Aggregate demand and inflation and unemployment ✜
effects of increases in aggregate demand (relative to potential output)
✜
how the objectives vary with the course of the business cycle
The Phillips curve ✜
the original curve
✜
the apparent policy implications
The original Phillips curve 9 8
Wage inflation (%)
7 6 5 4 3 2 1 0 0
1
2
3
Unemployment
4
5
6
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
Original Phillips curve
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16
74
14 12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
77
14
79
12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
78
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
82
78
7 2
85
4
5
6
7
8
9
10
11
84
12
83
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2
82
89
78
91 88 95
85
94
87 92
84
83
86
93 4
5
6
7
8
9
10
11
12
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
✜
a horizontal Phillips curve?
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2
98
00 01
5
91 88 95
97
96
99
02 4
82
89
78
6
7
8
85
94
87 92
84
83
86
93 9
10
11
12
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
✜
a horizontal Phillips curve?
Output gaps
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3 2 1
UK
0 -1 -2 -3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3
USA
2 1
UK
0 -1 -2 -3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3
USA
2 1
UK
0 -1 -2
Germany
-3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3
USA
2 1
UK
0 -1 -2
Germany
-3
Japan
-4 -5 -6 1980
1985
1990
1995
2000
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
✜
a horizontal Phillips curve?
■
Output gaps
■
Complexity of the relationship between inflation and unemployment
Unemployment and Inflation
Nature of Unemployment
NATURE OF UNEMPLOYMENT ■
The meaning of ‘unemployment’ defining the unemployment rate ✜ claimant unemployment ✜
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
NATURE OF UNEMPLOYMENT ■
The meaning of ‘unemployment’ defining the unemployment rate ✜ claimant unemployment ✜
✦ do
claimant statistics give a true picture of unemployment?
NATURE OF UNEMPLOYMENT ■
The meaning of ‘unemployment’ defining the unemployment rate ✜ claimant unemployment ✜
✦ do
claimant statistics give a true picture of unemployment?
✜
standardised unemployment (ILO/OECD)
NATURE OF UNEMPLOYMENT ■
The duration of unemployment ✜
inflows to and outflows from the stock of unemployment
Flows into and out of unemployment From outside the labour force
From jobs
•School/college leavers •People returning to the labour force (e.g. after raising children)
•People made redundant •People sacked •People temporarily laid off •People resigning
INFLOWS (per period of time)
UNEMPLOYMENT
Flows into and out of unemployment From outside the labour force
From jobs
•School/college leavers •People returning to the labour force (e.g. after raising children)
•People made redundant •People sacked •People temporarily laid off •People resigning
INFLOWS (per period of time)
UNEMPLOYMENT To jobs
OUTFLOWS (per period of time)
•People taking new jobs •People returning to old jobs who had been temporarily laid off
To outside the labour force
•People who have become disheartened and give up looking for a job •People who have reached retirement age •People who temporarily withdraw from labour force (e.g. to raise a family) •People who emigrate •People who die
NATURE OF UNEMPLOYMENT ■
The duration of unemployment ✜
inflows to and outflows from the stock of unemployment ✦ effects
on the duration of unemployment
NATURE OF UNEMPLOYMENT ■
The duration of unemployment ✜
inflows to and outflows from the stock of unemployment ✦ effects
✜
on the duration of unemployment
the phase of the business cycle
Unemployment rates in selected industrial countries UK
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14 12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
Japan
USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany
Japan
USA
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
Japan OECD
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
Unemployment rates in selected industrial countries UK France
Unemployment (% of workforce)
14
Germany USA
Japan OECD
12 10 8 6 4 2 0 1970
1975
1980
1985
1990
1995
2000
NATURE OF UNEMPLOYMENT ■
■
The composition of unemployment ✜
by geographical region
✜
by sex
✜
by age
✜
by ethnic groups
The costs of unemployment ✜
to the unemployed themselves
✜
to family and friends
✜
to society at large
Unemployment and Inflation
Causes of Unemployment
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
Disequilibrium unemployment
Average (real) wage rate
ASL
ADL O No. of workers
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
✜
equilibrium in the model
Disequilibrium unemployment
Average (real) wage rate
ASL
We
ADL O
Qe No. of workers
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
✜
equilibrium in the model
✜
disequilibrium unemployment
Disequilibrium unemployment
Average (real) wage rate
ASL
W2
B
A
We
ADL O
Q2
Q1 No. of workers
CAUSES OF UNEMPLOYMENT ■
Unemployment and the labour market ✜
aggregate demand and supply of labour
✜
equilibrium in the model
✜
disequilibrium unemployment
✜
equilibrium unemployment
Equilibrium unemployment
Average (real) wage rate
ASL
e We
ADL O
Qe No. of workers
Average (real) wage rate
Equilibrium unemployment ASL N
e We
d
ADL O
Qe
Q2
No. of workers
Equilibrium and disequilibrium unemployment
Average (real) wage rate
ASL
e We
ADL O
Qe No. of workers
Equilibrium and disequilibrium unemployment
Average (real) wage rate
ASL Disequilibrium unemployment
W2
b
a e
We
ADL O No. of workers
Equilibrium and disequilibrium unemployment
Average (real) wage rate
ASL Disequilibrium unemployment
W2
b
a
N
c
e We
Equilibrium unemployment
ADL O No. of workers
CAUSES OF UNEMPLOYMENT ■
Disequilibrium unemployment ✜
real-wage (classical) unemployment
Real-wage unemployment
Average (real) wage rate
ASL
W1
b
b’
a
We ADL 2 ADL O
Q2
Qe Q1 No. of workers
CAUSES OF UNEMPLOYMENT ■
Disequilibrium unemployment ✜
real-wage (classical) unemployment
✜
demand-deficient (cyclical) unemployment
Demand-deficient unemployment
Average (real) wage rate
ASL
W1 W2
ADL 1 ADL 2 O
Q2
Q1 No. of workers
CAUSES OF UNEMPLOYMENT ■
Disequilibrium unemployment ✜
real-wage (classical) unemployment
✜
demand-deficient (cyclical) unemployment
✜
unemployment arising from a growth in the labour supply
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
Average duration of unemployment
Wage rate
Wage rate offered (Wo)
Wage rate acceptable to worker (Wa) O
tl Period of search
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing
pattern of demand
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing ✦ regional
pattern of demand
unemployment
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing ✦ regional
pattern of demand
unemployment
✦ technological
unemployment
CAUSES OF UNEMPLOYMENT ■
Equilibrium unemployment ✜
frictional (search) unemployment
✜
structural unemployment ✦ changing ✦ regional
pattern of demand
unemployment
✦ technological
✜
unemployment
seasonal unemployment
Unemployment and Inflation
Aggregate Demand, Aggregate Supply and the Price Level
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
Aggregate demand and aggregate supply
Price level
Why the AD curve slopes downwards ✦
foreign trade effect
✦
real balance effect
✦
interest rate effect
The shape of the AD curve Shifts in the AD curve
AD O National output
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
Aggregate demand and aggregate supply
Price level
AS
■
short-run and long-run AS curves
■
the shape of the AS curve
■
shift in the AS curve
O National output
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
■
Equilibrium
Aggregate demand and aggregate supply
Price level
AS
Pe P2
b
a AD
O National output
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
■
Equilibrium ✜
shifts in the AD curve
AD, AS and the PRICE LEVEL ■
The aggregate demand curve
■
The aggregate supply curve
■
Equilibrium ✜
shifts in the AD curve
✜
shifts in the AS curve
Unemployment and Inflation
Inflation
INFLATION ■
Defining inflation
■
International experience of inflation
Inflation rates for selected countries (average % per annum)
Inflation rates for selected countries (average % per annum)
Inflation rates for selected countries (average % per annum)
Inflation rates in selected industrial countries
26
UK
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
UK
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
UK EU 15
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
UK EU 15
Inflation (% increase in retail prices)
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22 20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
OECD
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
Inflation rates in selected industrial countries
26
Inflation (% increase in retail prices)
USA
UK EU 15
24 22
OECD
Japan
20 18 16 14 12 10 8 6 4 2 0 -2 1965
1970
1975
1980
1985
1990
1995
2000
INFLATION ■
The costs of inflation ✜
redistribution
✜
uncertainty
✜
balance of payments
✜
resources used to cope with inflation
INFLATION ■
Types of inflation ✜
demand pull
Demand-pull inflation
Price level
AS
P1
AD1 O
Q1 National output
Demand-pull inflation
Price level
AS
P1
AD2 AD1 O
Q1 National output
Demand-pull inflation
Price level
AS
P2 P1
AD2 AD1 O
Q1
Q2
National output
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
Cost-push inflation
Price level
AS1
P1
AD O
Q1 National output
Cost-push inflation AS1
Price level
AS2
P1
AD O
Q1 National output
Cost-push inflation
Price level
AS2
AS1
P2 P1
AD O
Q2
Q1 National output
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
The interaction of demand-pull and cost-push inflation
Price level
AS1
P1
AD1 O National output
The interaction of demand-pull and cost-push inflation
Price level
AS2
AS1
P2 P1
AD2 AD1 O National output
The interaction of demand-pull and cost-push inflation AS3 AS
Price level
2
AS1
P3
P2
AD3
P1
AD2 AD1 O National output
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
INFLATION ■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
INFLATION ■
■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
Policies to tackle inflation
INFLATION ■
■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
Policies to tackle inflation ✜
demand-side policies
INFLATION ■
■
Types of inflation ✜
demand pull
✜
cost push
✜
interaction of demand-pull and cost-push inflation
✜
structural (demand shift)
✜
expectations and inflation
Policies to tackle inflation ✜
demand-side policies
✜
supply-side policies
Unemployment and Inflation
Relationship between Unemployment and Inflation
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
■
Aggregate demand and inflation and unemployment ✜
effects of increases in aggregate demand (relative to potential output)
✜
how the objectives vary with the course of the business cycle
The Phillips curve ✜
the original curve
✜
the apparent policy implications
The original Phillips curve 9 8
Wage inflation (%)
7 6 5 4 3 2 1 0 0
1
2
3
Unemployment
4
5
6
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
Original Phillips curve
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16
74
14 12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
77
14
79
12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
78
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
82
78
7 2
85
4
5
6
7
8
9
10
11
84
12
83
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2
82
89
78
91 88 95
85
94
87 92
84
83
86
93 4
5
6
7
8
9
10
11
12
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
✜
a horizontal Phillips curve?
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2
98
00 01
5
91 88 95
97
96
99
02 4
82
89
78
6
7
8
85
94
87 92
84
83
86
93 9
10
11
12
13
Unemployment (%)
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
✜
a horizontal Phillips curve?
Output gaps
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3 2 1
UK
0 -1 -2 -3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3
USA
2 1
UK
0 -1 -2 -3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3
USA
2 1
UK
0 -1 -2
Germany
-3 -4 -5 -6 1980
1985
1990
1995
2000
Output gaps in selected countries: 1980-2003 Output gap (actual output minus sustainable output as a % of sustainable output)
7 6 5 4 3
USA
2 1
UK
0 -1 -2
Germany
-3
Japan
-4 -5 -6 1980
1985
1990
1995
2000
RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT ■
The 'Phillips curve' in recent times ✜
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
✜
experience of the 1980s
✜
experience of recent years
✜
a horizontal Phillips curve?
■
Output gaps
■
Complexity of the relationship between inflation and unemployment
Related Documents
Unemployment And Inflation
November 2019 14
Aggregate Supply, Unemployment And Inflation
November 2019 18
Unemployment Vs. Inflation
June 2020 1
Unemployment
November 2019 37
Inflation And Inflation In India
May 2020 12