The Inflation-Based ‘Natural’ Rate of Unemployment and the Conflict Over Income Distribution

1984 ◽  
pp. 103-126
Author(s):  
Peter Flaschel
Keyword(s):  
Income Distribution ◽  
Natural Rate ◽  
Natural Rate Of Unemployment

Wages, Prices, the Natural Wage and Income Distribution

2001 ◽  
Author(s):  
Peter M. Gutman
Keyword(s):  
Economic Growth ◽  
Income Distribution ◽  
Real Wage ◽  
Monopolistic Competition ◽  
Price Level ◽  
Full Employment ◽  
Real Wages ◽  
Natural Rate ◽  
Natural Rate Of Unemployment ◽  
Short Run

In a world of oligopoly and monopolistic competition, prices are essentially set using a markup principle. Real wages are money wages divided by average price level, which depends on average markup level. In the short run, as markups and real wages change when expectations are not correct, income distribution changes. The natural real wage is the real wage at full employment (natural rate of unemployment NAIRU). Even without economic growth the natural real wage, hence income distribution, can change. With economic growth, the natural real wage occurs at: lower rates of unemployment in dynamic societies; higher rates of unemployment in sluggish societies.

scholarly journals Recovering Keynesian Phillips curve theory: hysteresis of ideas and the natural rate of unemployment

2018 ◽  
Vol 6 (4) ◽  
pp. 473-492 ◽  
Author(s):  
Thomas Palley
Keyword(s):  
Economic Theory ◽  
Phillips Curve ◽  
50Th Anniversary ◽  
Theoretical Argument ◽  
Natural Rate ◽  
Macroeconomic Theory ◽  
Natural Rate Of Unemployment ◽  
Economics Profession ◽  
Curve Theory

Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky breaks. Despite much evidence against the NRU, and much evidence and theoretical argument supportive of the Keynesian Phillips curve, the NRU hypothesis remains ascendant. The hypothesis has had an enormous impact on macroeconomic theory and policy. 2018 is the 50th anniversary of Friedman's introduction of the NRU hypothesis. The anniversary offers an opportunity to challenge rather than celebrate it.

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