09. unemployment and inflation
TRANSCRIPT
UnemploymentUnemploymentand Inflationand Inflation
Unemployment and Inflation
Nature of Unemployment
The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment
NATURE OF UNEMPLOYMENT
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
UK claimant unemployment flows (millions)
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
NATURE OF UNEMPLOYMENT
•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
UNEMPLOYMENT
INFLOWS(per period of time)
From jobs From outside the labour forceFlows into and out of unemployment
•People made redundant•People sacked•People temporarily laid off•People resigning
UNEMPLOYMENT
OUTFLOWS(per period of time)
To jobs To outside thelabour force
•People taking new jobs•People returning to old jobs who had been temporarily laid off
•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
INFLOWS(per period of time)
From jobs From outside the labour force•School/college leavers•People returning to the labour force (e.g. after raising children)
Flows into and out 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
NATURE OF UNEMPLOYMENT
Unemployment rates in selected industrial countriesUK
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance
Germany
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance
Germany
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance USA
Germany
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance USA
Germany
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance USA
Germany Japan
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance USA
Germany Japan
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance USA
Germany JapanOECD
Unemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UKFrance USA
Germany JapanOECD
Unemployment rates in selected industrial countries
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
NATURE OF UNEMPLOYMENT
Unemployment and Inflation
Causes of Unemployment
Unemployment and the labour market aggregate demand and supply of labour
CAUSES OF UNEMPLOYMENT
Disequilibrium unemployment
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
Unemployment and the labour market aggregate demand and supply of labour
equilibrium in the model
CAUSES OF UNEMPLOYMENT
Qe
Disequilibrium unemployment
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
We
Unemployment and the labour market aggregate demand and supply of labour
equilibrium in the model
disequilibrium unemployment
CAUSES OF UNEMPLOYMENT
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
We
W2
Disequilibrium unemployment
Q2 Q1
B A
Unemployment and the labour market aggregate demand and supply of labour
equilibrium in the model
disequilibrium unemployment
equilibrium unemployment
CAUSES OF UNEMPLOYMENT
Equilibrium unemployment
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ADL
We
ASL
e
Qe
Q2QeO
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
We
N
e d
Equilibrium unemployment
Equilibrium and disequilibrium unemployment
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ADL
We
e
Qe
ASL
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
We
W2
b a
e
Disequilibriumunemployment
Equilibrium and disequilibrium unemployment
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
We
W2
b a
e
N
c
Equilibriumunemployment
Disequilibriumunemployment
Equilibrium and disequilibrium unemployment
Disequilibrium unemployment
real-wage (classical) unemployment
CAUSES OF UNEMPLOYMENT
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ASL
ADL
We
W1
QeQ2 Q1
ADL 2
b’
Real-wage unemployment
b a
Disequilibrium unemployment
real-wage (classical) unemployment
demand-deficient (cyclical) unemployment
CAUSES OF UNEMPLOYMENT
ADL 2
O
Ave
rage
(rea
l) w
age
rate
No. of workers
ADL 1
W1
Q1Q2
W2
ASL
Demand-deficient 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
CAUSES OF UNEMPLOYMENT
O
Wag
e ra
te
Period of search
t l
Wage rate offered (Wo)
Wage rate acceptable to worker (Wa)
Average duration 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 pattern of demand regional unemployment
CAUSES OF UNEMPLOYMENT
Equilibrium unemployment frictional (search) unemployment structural unemployment
changing pattern of demand regional unemployment technological unemployment
CAUSES OF UNEMPLOYMENT
Equilibrium unemployment frictional (search) unemployment structural unemployment
changing pattern of demand regional unemployment technological unemployment
seasonal unemployment
CAUSES OF UNEMPLOYMENT
Unemployment and Inflation
Aggregate Demand, Aggregate Supply and
the Price Level
The aggregate demand curve
AD, AS and the PRICE LEVEL
O
Pric
e le
vel
National output
AD
Aggregate demand and aggregate supplyWhy 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
The aggregate demand curve
The aggregate supply curve
AD, AS and the PRICE LEVEL
O
Pric
e le
vel
National output
AS
short-run and long-run AS curves
the shape of the AS curve
shift in the AS curve
Aggregate demand and aggregate supply
The aggregate demand curve
The aggregate supply curve
Equilibrium
AD, AS and the PRICE LEVEL
O
Pric
e le
vel
National output
AS
AD
Pe
P2
ab
Aggregate demand and aggregate supply
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
AD, AS and the PRICE LEVEL
Unemployment and Inflation
Inflation
Defining inflation
International experience of inflation
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)
UK
Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UKEU 15
Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UKEU 15
Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UKEU 15
USA
Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UKEU 15
USA
Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UKEU 15 Japan
USA
Inflation rates in selected industrial countries
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UKEU 15 Japan
USA
Inflation rates in selected industrial countries
UKEU 15 Japan
USA OECD
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countries
UKEU 15 Japan
USA OECD
-202468
101214161820222426
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countries
The costs of inflation
redistribution
uncertainty
balance of payments
resources used to cope with inflation
INFLATION
Types of inflation demand pull
INFLATION
Demand-pull inflation
O
Pric
e le
vel
National output
AS
AD1
P1
Q1
O
Pric
e le
vel
National output
AS
AD1
P1
Q1
AD2
Demand-pull inflation
O
Pric
e le
vel
National output
AS
AD1
P1
Q1
AD2
P2
Q2
Demand-pull inflation
Types of inflation demand pull cost push
INFLATION
Cost-push inflation
O
Pric
e le
vel
National output
AS1
AD
P1
Q1
O
Pric
e le
vel
National output
AS1
AD
P1
Q1
AS2
Cost-push inflation
O
Pric
e le
vel
National output
AS1
AD
P1
Q1
AS2
P2
Q2
Cost-push inflation
Types of inflation demand pull cost push interaction of demand-pull and cost-push
inflation
INFLATION
The interaction of demand-pull and cost-push inflation
O
Pric
e le
vel
National output
AS1
AD1
P1
O
Pric
e le
vel
National output
AS1
AD1
P1
AS2
AD2
P2
The interaction of demand-pull and cost-push inflation
O
Pric
e le
vel
National output
AS1
AD1
P1
AD2
P2
AS3
AD3
P3
The interaction of demand-pull and cost-push inflation
AS2
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
INFLATION
Unemployment and Inflation
Relationship between Unemployment and
Inflation
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
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT
0
1
2
3
4
5
6
7
8
9
0 1 2 3 4 5 6
The original Phillips curve
Unemployment (%)
Wag
e in
flatio
n (%
)
The 'Phillips curve' in recent times
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6763
6265
6664
60
61
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6763
6265
6664
60
61
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Original Phillips curve
74
7173
7072
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6968
6763
6265
6664
60
61
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
75
7476
77
79
7173
7072
78
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6968
6763
6265
6664
60
61
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
The 'Phillips curve' in recent times
the breakdown of the Phillips curve and the problem of stagflation in the 1970s
experience of the 1980s
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
75
74
8076
77
79
7173
7072
78 82
8384
85
81
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6968
6763
6265
6664
60
61
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
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT
75
74
8076
77
79
7173
7072
78
90
89
9188
95
82
8384
85
86
93
8792
94
81
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6968
6763
6265
6664
60
61
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
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?
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13
75
74
8076
77
79
7173
7072
78
90
89
9796
9188
95
82
8384
85
86
93
8792
94
81
Inflation (%)
Unemployment (%)
The breakdown of the Phillips curve?
6968
6763
6265
6664
60
6199
9800
0102
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
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1985 1990 1995 2000Out
put g
ap (a
ctua
l out
put m
inus
sus
tain
able
out
put a
s a
% o
f sus
tain
able
out
put)
Output gaps in selected countries: 1980-2003
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1985 1990 1995 2000Out
put g
ap (a
ctua
l out
put m
inus
sus
tain
able
out
put a
s a
% o
f sus
tain
able
out
put)
Output gaps in selected countries: 1980-2003
UK
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1985 1990 1995 2000Out
put g
ap (a
ctua
l out
put m
inus
sus
tain
able
out
put a
s a
% o
f sus
tain
able
out
put)
Output gaps in selected countries: 1980-2003
UK
USA
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1985 1990 1995 2000Out
put g
ap (a
ctua
l out
put m
inus
sus
tain
able
out
put a
s a
% o
f sus
tain
able
out
put)
Output gaps in selected countries: 1980-2003
UK
USA
Germany
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1985 1990 1995 2000Out
put g
ap (a
ctua
l out
put m
inus
sus
tain
able
out
put a
s a
% o
f sus
tain
able
out
put)
Output gaps in selected countries: 1980-2003
UK
USA
Germany
Japan
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
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT