09. unemployment and inflation

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)

do claimant statistics give a true picture of unemployment?

standardised unemployment (ILO/OECD)

The duration of unemployment inflows to and outflows from the stock 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

unemployment effects on the duration of unemployment

the phase of the business cycle

Unemployment rates in selected industrial countriesUK

1970 1975 1980 1985 1990 1995 2000

Unemployment rates in selected industrial countries

1970 1975 1980 1985 1990 1995 2000

UKFrance

1970 1975 1980 1985 1990 1995 2000

UKFrance

1970 1975 1980 1985 1990 1995 2000

UKFrance

Germany

1970 1975 1980 1985 1990 1995 2000

UKFrance

Germany

1970 1975 1980 1985 1990 1995 2000

UKFrance USA

Germany

1970 1975 1980 1985 1990 1995 2000

UKFrance USA

Germany

1970 1975 1980 1985 1990 1995 2000

UKFrance USA

Germany Japan

1970 1975 1980 1985 1990 1995 2000

UKFrance USA

Germany Japan

1970 1975 1980 1985 1990 1995 2000

UKFrance USA

Germany JapanOECD

1970 1975 1980 1985 1990 1995 2000

UKFrance USA

Germany JapanOECD

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

Causes of Unemployment

Unemployment and the labour market aggregate demand and supply of labour

CAUSES OF UNEMPLOYMENT

Disequilibrium unemployment

No. of workers

equilibrium in the model

No. of workers

disequilibrium unemployment

No. of workers

disequilibrium unemployment

equilibrium unemployment

Equilibrium unemployment

No. of workers

Equilibrium unemployment

Equilibrium and disequilibrium unemployment

No. of workers

Disequilibriumunemployment

No. of workers

Equilibriumunemployment

Disequilibriumunemployment

real-wage (classical) unemployment

No. of workers

QeQ2 Q1

Real-wage unemployment

demand-deficient (cyclical) unemployment

No. of workers

Demand-deficient unemployment

demand-deficient (cyclical) unemployment

unemployment arising from a growth in the labour supply

Equilibrium unemployment frictional (search) unemployment

Period of search

Wage rate offered (Wo)

Wage rate acceptable to worker (Wa)

Average duration of unemployment

Equilibrium unemployment frictional (search) unemployment structural unemployment

changing pattern of demand

changing pattern of demand regional unemployment

changing pattern of demand regional unemployment technological unemployment

seasonal unemployment

Aggregate Demand, Aggregate Supply and

the Price Level

The aggregate demand curve

AD, AS and the PRICE LEVEL

National output

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 supply curve

National output

short-run and long-run AS curves

the shape of the AS curve

shift in the AS curve

Aggregate demand and aggregate supply

Equilibrium

National output

Aggregate demand and aggregate supply

Equilibrium shifts in the AD curve

shifts in the AS curve

Inflation

Defining inflation

International experience of inflation

INFLATION

Inflation rates for selected countries(average % per annum)

Inflation rates in selected industrial countries

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

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1965 1970 1975 1980 1985 1990 1995 2000

)Inflation rates in selected industrial countries

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101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15

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1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15 Japan

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15 Japan

USA OECD

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

UKEU 15 Japan

USA OECD

-202468

101214161820222426

1965 1970 1975 1980 1985 1990 1995 2000

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

National output

Types of inflation demand pull cost push

INFLATION

Cost-push inflation

National output

Cost-push inflation

National output

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

National output

inflation structural (demand shift)

INFLATION

inflation structural (demand shift) expectations and inflation

INFLATION

Policies to tackle inflation

INFLATION

Policies to tackle inflation demand-side policies

INFLATION

Policies to tackle inflation demand-side policies supply-side policies

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

The original Phillips curve

Unemployment (%)

flatio

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Inflation (%)

Unemployment (%)

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Original Phillips curve

Inflation (%)

Unemployment (%)

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Inflation (%)

Unemployment (%)

0 1 2 3 4 5 6 7 8 9 10 11 12 13

experience of the 1980s

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Inflation (%)

Unemployment (%)

experience of recent years

Inflation (%)

Unemployment (%)

0 1 2 3 4 5 6 7 8 9 10 11 12 13

experience of recent years

a horizontal Phillips curve?

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Inflation (%)

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

1980 1985 1990 1995 2000Out

Output gaps in selected countries: 1980-2003

1980 1985 1990 1995 2000Out

Germany

1980 1985 1990 1995 2000Out

Germany

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

09. unemployment and inflation

Education

Unemployment & inflation presentation

Inflation and Unemployment

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Chapter 09: Unemployment and Inflation - Yulin Houyulinhou.weebly.com/uploads/7/7/2/9/77292509/hubbard_macro6e_p… · Title: Chapter 09: Unemployment and Inflation Author: R. Glenn

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