Unemployment and Inflation. Безработица и инфляция.
Unemployment - people who are actively looking for work but aren’t currently employed. Labor force = employment + unemployment. (Doesn’t include discouraged workers). Labor force participation rate = labor force/population age 16 and older *100. Labor market - the market where workers compete for jobs and employers compete for workers. Unemployment rate = unemployed/labor force *100 (indicator of current labor market conditions: how easy or difficult it is to find a job). However, it can understate the true level of unemployment– it excludes discouraged (capable but have been given up looking for), marginally attached (looking for, but not currently) and underemployed workers (part-time because can’t find full-time). The unemployment rate rises during recessions and falls (not always) during expansion. It has negative relation with real GDP growth. Frictional unemployment results due to the time workers spend in job search. Structural unemployment results when there are more people seeking jobs in labor market than there are jobs available at the current wage rate. Minimum wages, unions, efficiency wages, and the side effects of public policy lead to structural unemployment. Frictional + Structural = Natural. Natural + cyclical (depends on business cycle) = Actual. Causes: The natural rate of unemployment can shift over time, due to changes in labor force characteristics and institutions, government policies (high min wage – rise in structural).
In the short run, policies that produce a booming economy also tend to lead to higher inflation, and policies that reduce inflation tend to depress the economy.
When actual aggregate output is equal to potential output, the actual unemployment rate is equal to the natural rate of unemployment. When the output gap is positive (an inflationary gap), the unemployment rate is below the natural rate. When the output gap is negative (a recessionary gap), the unemployment rate is above the natural rate.
Stagflation - a situation where an inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high (negative SRAS shock or bad monetary/fiscal policy).
of Okun’s law—the negative relationship between the output gap and the unemployment rate— typically find that a rise in the output gap of 1 percentage point reduces the unemployment rate by about 1⁄2 of a percentage point
In short-run there is a downward-sloping relationship between unemployment and inflation known as the short-run Phillips curve. It is shifted by changes in expected rate of inflation. The long-run Phillips curve, which shows the relationship between unemployment and inflation once expectations have had time to adjust, is vertical. It defines the non-accelerating inflation rate of unemployment (NAIRU), which is equal to the natural rate of unemployment.
Short term Phillips curve: Original: π=-b(U-Un). Modern: π=πe-b(U-Un)+v, v-external shock, b is a positive constant, U is unemployment, and Un is the natural rate of unemployment.