Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-848d4c4894-sjtt6 Total loading time: 0 Render date: 2024-07-06T17:23:43.208Z Has data issue: false hasContentIssue false

5 - Inflation and unemployment

Published online by Cambridge University Press:  07 October 2011

Robert J. Barro  and
Herschel I. Grossman
Robert J. Barro
Affiliation:
University of Chicago
Herschel I. Grossman
Affiliation:
Brown University, Rhode Island
Get access

Summary

This chapter shifts the analytical focus to the market for labor services and considers in detail the coincident behavior of the rate of change of wages and the level of employment. Section 5.1 discusses the concepts of wage inflation, underemployment, and unemployment within the context of a single labor market as developed in the preceding chapters. Section 5.2 generalizes this analytical framework by introducing heterogeneous labor services and deriving a richer model of the coincident behavior of unemployment and wage inflation. Sections 5.3, 5.4, and 5.5 expand this model to consider the implications of asymmetrical wage response, gradual adjustment of measured unemployment, and inflationary expectations.

Wage inflation, underemployment, and unemployment in a single labor market

The analysis developed in chapter 2 above considered the relations between the quantities of labor services demanded and supplied, the rate of change of nominal wages, and the level of employment. Let us briefly review the results of this analysis. Figures 2.8–2.11 illustrate effective market-clearing loci for labor services, labeled ld′ = ls and ld = ls′. These loci divide (M/P, W/P) space into a region of excess labor demand to the right and a region of excess labor supply to the left. In the excess demand region employment equals the quantity supplied, whereas in the excess supply region employment equals the quantity demanded.

Figures 2.9 and 2.11 illustrate iso-employment loci. The maximum employment level l⋆ coincides with the unique combination of M/P and W/P which is consistent with general market clearing.

Type
Chapter
Information
Money Employment and Inflation , pp. 188 - 210
Publisher: Cambridge University Press
Print publication year: 1976

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×