Chapter 19 - Wage changes, price inflation and unemployment. This chapter presents the following content: The connection between aggregate wage changes and unemployment rate, the relationship between inflation and unemployment, anti-inflationary policies, persistence of unemployment, wage rigidity. | Chapter Nineteen Wage Changes, Price Inflation and Unemployment Created by: Erica Morrill, Fanshawe College Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus The connection between aggregate wage changes and unemployment rate The relationship between inflation and unemployment Anti-inflationary policies Persistence of unemployment Wage rigidity Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Determinants of Wage Changes Unemployment Rate Expected Inflation Unanticipated Inflation Productivity Growth Other Factors Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Unemployment Rate Phillips Curve negative relationship between unemployment and inflation rate. Lipsey unemployment is overall excess of demand or supply rate of wage change is a function of this excess Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Figure a Wage Changes, Excess Demand and Unemployment W N Disequilibrium in individual labour markets W N S S Wa* D D Wb* Wa Da Sa Wb Sb Db Chapter 19- © . | Chapter Nineteen Wage Changes, Price Inflation and Unemployment Created by: Erica Morrill, Fanshawe College Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus The connection between aggregate wage changes and unemployment rate The relationship between inflation and unemployment Anti-inflationary policies Persistence of unemployment Wage rigidity Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Determinants of Wage Changes Unemployment Rate Expected Inflation Unanticipated Inflation Productivity Growth Other Factors Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Unemployment Rate Phillips Curve negative relationship between unemployment and inflation rate. Lipsey unemployment is overall excess of demand or supply rate of wage change is a function of this excess Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Figure a Wage Changes, Excess Demand and Unemployment W N Disequilibrium in individual labour markets W N S S Wa* D D Wb* Wa Da Sa Wb Sb Db Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Figure b Wage Changes, Excess Demand and Unemployment The relationship between wage changes and excess demand . Wi . Wa . W1b . Wb Di-Si Si Db-Sb Sb Da-Sa Sa Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Figure c Wage Changes, Excess Demand and Unemployment U* V* U** V** The relationship between unemployment and job vacancies U V Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Figure d Wage Changes, Excess Demand and Unemployment U* The relationship between aggregate excess demand and unemployment U D-S S Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Figure e Wage Changes, Excess Demand and Unemployment U* The relationship between wage changes and unemployment U . W Chapter 19- © 2002 McGraw-Hill Ryerson Ltd. Natural Unemployment U* is independent of U More than one unemployment rate at which the economy is in macroeconomic equilibrium Increase in U* shifts the Phillips curve upward larger wage increases at each rate increased .
