[PDF] Fluctuation In Equilibrium Unemployment eBook

Author : Robert E. Hall
Publisher :
Page : pages
File Size : 15,46 MB
Release : 1978
Category :
ISBN :

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Fluctuations in the equilibrium rate of unemployment can only be understood within a theory of the natural or equilibrium rate. It is not enough to say that unemployment is the difference between supply and demand in the labor market, though of course it always will be. In equilibrium, no participants in the market can have an unexploited opportunity to make themselves better off. At the equilibrium unemployment rate, employers cannot obtain labor at lower cost by offering work at below the market wage to the unemployed. Unemployed workers cannot raise their effective real incomes by taking lower wages in exchange for immediate employment. The task of the theory is to explain why any unemployment remains at all when these conditions are satisfied. Part of this problem has been studied in detail in the "search theory" of unemployment -- once a worker becomes unemployed, it is reasonably well understood why the worker does not become employed again immediately. The theory of why people become unemployed in the first place is less well developed and is the main concern of this paper. Most of the unemployed are looking for new work because their previous jobs ran out. Consequently, the main ingredient of a theory of the flow of workers into unemployment is a theory of the duration of employment. Such a theory is developed here, along reasonably standard lines

Author : Edmund S. Phelps
Publisher : Harvard University Press
Page : 444 pages
File Size : 45,42 MB
Release : 1994
Category : Business & Economics
ISBN : 9780674843738

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Dissatisfied with the explanations of the business cycle provided by the Keynesian, monetarist, New Keynesian, and real business cycle schools, Edmund Phelps has developed from various existing strands-some modern and some classical--a radically different theory to account for the long periods of unemployment that have dogged the economies of the United States and Western Europe since the early 1970s. Phelps sees secular shifts and long swings of the unemployment rate as structural in nature. That is, they are typically the result of movements in the natural rate of unemployment (to which the equilibrium path is always tending) rather than of long-persisting deviations around a natural rate itself impervious to changing structure. What has been lacking is a "structuralist" theory of how the natural rate is disturbed by real demand and supply shocks, foreign and domestic, and the adjustments they set in motion. To study the determination of the natural rate path, Phelps constructs three stylized general equilibrium models, each one built around a distinct kind of asset in which firms invest and which is important for the hiring decision. An element of these models is the modern economics of the labor market whereby firms, in seeking to dampen their employees' propensities to quit and shirk, drive wages above market-clearing levels-the phenomenon of the "incentive wage"--and so generate involuntary unemployment in labor-market equilibrium. Another element is the capital market, where interest rates are disturbed by demand and supply shocks such as shifts in profitability, thrift, productivity, and the rate of technical progress and population increase. A general-equilibrium analysis shows how various real shocks, operating through interest rates upon the demand for employees and through the propensity to quit and shirk upon the incentive wage, act upon the natural rate (and thus equilibrium path). In an econometric and historical section, the new theory of economic activity is submitted to certain empirical tests against global postwar data. In the final section the author draws from the theory some suggestions for government policy measures that would best serve to combat structural slumps.

Author : Jordi Gali
Publisher : MIT Press
Page : 119 pages
File Size : 48,73 MB
Release : 2011-07-01
Category : Business & Economics
ISBN : 0262015978

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A new approach for introducing unemployment into the New Keynesian framework. The past fifteen years have witnessed the rise of the New Keynesian model as a framework of reference for the analysis of fluctuations and stabilization policies. That framework, which combines the rigor and internal consistency of dynamic general equilibrium models with such typically Keynesian assumptions as monopolistic competition and nominal rigidities, makes possible a meaningful, welfare-based analysis of the effects of monetary policy rules. But the conspicuous absence of unemployment from the standard New Keynesian model has given rise to both criticism and attempts to rectify this anomaly. In this book, Jordi Galí, one of the major contributors to the New Keynesian literature, offers a new approach to introducing unemployment into that framework. Galí's approach involves a reinterpretation of the labor market in the standard New Keynesian model with staggered wage setting (rather than a modification or extension of the model, as has been proposed by others). The resulting framework preserves the convenience of the representative household paradigm and allows one to determine the equilibrium levels of employment, the labor force, and hence the unemployment rate conditional on the monetary policy in place. Galí develops the basic model, embedding it in a standard New Keynesian framework with staggered price and wage setting; revisits the relationship between economic fluctuations and efficiency through the lens of the new model, developing a measure of the output gap; and analyzes the relation between unemployment and the design of monetary policy.

Author : Andrea Hornstein
Publisher : DIANE Publishing
Page : 33 pages
File Size : 27,51 MB
Release : 2008-10
Category : Business & Economics
ISBN : 1437904963

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The behavior of unemploy. over the bus. cycle plays an important role in economic policy considerations. Most of the variation in unemploy. comes about through changes in job-finding rates. Search theories of unemploy. study the implications of the matching process between unemployed workers and vacant jobs in environments with search frictions. The authors review work on whether these theories are consistent with the cyclical behavior of unemploy. and job-finding rates. They conclude that when the basic search model is calibrated to generate labor market volatility of a magnitude comparable with the data, it has sharp counterfactual implications for the size and the cyclicality of the wage share and for the elasticity of unemploy. to welfare benefits.

Author : Benjamin Higgins
Publisher : Routledge
Page : 384 pages
File Size : 17,52 MB
Release : 2018-01-16
Category : Business & Economics
ISBN : 1351292358

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The world economy has undergone a fundamental transformation in recent decades and theoretical structures inherited from the 1930s through the 1950s, while retaining large elements of truth, are inadequate to deal with current problems. Benjamin Higgins feels that for a society such as the United States a fiscal policy needs to be adopted that can deal simultaneously with existing unemployment and inflation. He suggests three possible governmental policies: stimulating a high rate of long-run growth, by use of reward innovations and by maintaining the highest possible level of scientific and technical activity; isolating regions that are generators of inflation and others that are pools for unemployment; and establishing a system of direct controls similar to those used in wartime. Higgins describes the transformation of the cogent prewar business cycle, with its alternations of inflation or unemployment, then a transitional period of underemployment equilibrium and secular stagnation, and finally, the strange new world of today, one with economic fluctuations in the form of shifting trade-off curves and loops. He then applies his new paradigm to current problems, showing why they cannot be managed through macroeconomic monetary and fiscal policy. Higgins offers case studies of efforts to fight inflation and unemployment, and to reduce regional gaps, to show their strengths and weaknesses. It can be said that unemployment always results from too many people chasing too few jobs, and inflation is always caused by too much money chasing too few goods and services. Beyond such banal generalizations, Higgins maintains there is no single cause for either unemployment or inflation, and thus no single cure can be prescribed for either, let alone for both at once. Nor is it to be expected that the appropriate cure will prove to be the same in all countries at all times. He suggests that an optimal blend of monetary and fiscal policy that will produce the "minimum discomfort" is a good start. Employment Without Inflation will be of direct policy interest to economists, sociologists, and national planners.

Author : M. Sebastiani
Publisher : Springer
Page : 216 pages
File Size : 39,11 MB
Release : 1994-02-22
Category : Business & Economics
ISBN : 0230373720

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Kalecki's opus has been acknowledged chiefly as a contribution to the theory of distribution and the business cycle. Little attention has been given to the theory of effective demand and to unemployment equilibrium, i.e. to the field traditionally covered by Keynesian economics. This book is an attempt to draw attention to the most innovative core of Kalecki's thought on capitalist economies, which is also strictly interrelated to the history of economic thought. Accordingly, it focuses on the relationships with other theoretical approaches, to methodology and the theory of effective demand and investment, to the theory of distribution and prices, and to the theory of money.

Author : Hans van Ees
Publisher :
Page : 216 pages
File Size : 48,22 MB
Release : 1991
Category : Business cycles
ISBN :

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A theoretical analysis of fluctuations in aggregate output, demand, employment and the general price level. It focuses on the characteristics of adjustment processes and aims to provide a macroeconomic analysis with a solid micro-foundation.

Author : Jiandong Ju
Publisher :
Page : 0 pages
File Size : 31,66 MB
Release : 2001
Category :
ISBN :

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Using a dynamic general equilibrium model with many goods and many factors, this paper studies the adjustment process in a transition from one equilibrium to another. Applying a search process, an adjustment technique is developed to link the product and factor markets. Then an optimal control problem is solved and the optimal price adjustment is shown to be periodical, which generates price rigidities and unemployed factor fluctuations. Therefore, this paper develops an exploratory business cycle model in which price rigidities and unemployed factor fluctuations are the properties of the adjustment process in a transition from one equilibrium to another. In contrast to many conventional macroeconomic models, the model studied in this paper has the following distinguishing characteristics: 1) The adjustment process from one equilibrium to another, not equilibrium itself is studied. As a result, price rigidities and unemployment fluctuations are consequences of adjustment to the change of equilibrium prices that results from change of economic environment. 2) A general equilibrium model with multiple sectors is used to analyze factor flows across different sectors in the adjustment process. With this setup, the change in equilibrium prices means the change of any component in the price vector, not just the change of price index as in the one good model. 3) Perfect information and perfect competition are assumed. 4) The consumer maximizes instantaneous utility subject to a current budget constraint and then a social planner chooses an optimal price adjustment path to maximize intertemporal social utility. Thus, we investigate the causes of price rigidities and unemployment fluctuations that are distinct from intertemporal substitution. 5) Adjustment cost is assumed to be zero. We assume that factor adjustments take time. Changes in economic environment require change of steady state equilibrium prices. Price adjustments then take place in a transition from one equilibrium to another. Price adjustment results in changes in factor demands among different sectors. The reductions (increases) of factors demanded result in unemployment (vacancy) immediately after the price adjustment. The unemployed factors then find new positions through a searching process. Price adjustment alone increases social welfare, however, unemployment resulting from price adjustment reduces social welfare. An optimal price adjustment is determined by the net dynamic gain of the adjustment. It is shown that the net dynamic gain of the price adjustment is the sum of the net intertemporal gain and its dynamic residual. The price adjustment takes place when the net dynamic gain equals zero. The amount of the price reduction is determined such that the net intertemporal gain of the price adjustment equals zero. The dynamic residual is negative when the stability conditions hold. Therefore, net dynamic gain becomes negative immediately after the price adjustment taking place. Negative net dynamic gain prevents any further price adjustment. As time goes on, unemployed factors find new positions and the net dynamic gain reaches zero; the next price adjustment then begins. Therefore, the optimal price adjustment path is periodical, which generates price rigidities and unemployed factor fluctuations in the economy.