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From my courses in macroeconomic theory I know some of the basics of how there might be a non-accelerating inflationary rate of unemployment which should be the target for policymakers in order to keep prices relatively stable. I've read some criticisms of this perspective, especially from people that suggest a looser target for inflation in order to tend towards somewhat lower unemployment, but I haven't read much from the perspective of denying the idea of this sort of monetary policy targeting altogether. For my purposes it doesn't particularly matter to discuss the merits of counter-cyclical interventions but rather the sort of everyday targeting of inflation and an associated unemployment rate. My question is whether or not the composition of unemployment needs to be thought of as sort of bloc of single excluded but willing labour market participants competing for full time work. As in, imagine if there 10 people in the labour market with 10% unemployment with those employed working a 40 hour waged work week. Would the effect on price level be the same if you reduced the work week to 36 hours and had zero traditional unemployment? Or is it the deprivation and exclusion of the marginal person that has the effect of holding down wage demands and so on? You can see the obvious related questions here, like how underemployment figures into the NAIRU and so on. One policy that is popular in sections of the Left is sharing work in a more extensive way, using reduced hours of work for the majority to create jobs for the presently excluded minority. Part of this involves the claim that the "lump of work fallacy" is not a perfect challenge to this policy and that distribution of work is indeed possible without a terrible decrease in productivity. But as you can see it would make little sense if you had a reduced work week or extensive public jobs program if it created an inflationary push and the monetary policy response of contracting the economy to expand unemployment, defeating the entire project of reducing unemployment.
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| # ? Nov 03, 2009 22:36 |
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| # ? Nov 21, 2009 16:24 |
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break the fourth posted:From my courses in macroeconomic theory I know some of the basics of how there might be a non-accelerating inflationary rate of unemployment which should be the target for policymakers in order to keep prices relatively stable. I've read some criticisms of this perspective, especially from people that suggest a looser target for inflation in order to tend towards somewhat lower unemployment, but I haven't read much from the perspective of denying the idea of this sort of monetary policy targeting altogether. For my purposes it doesn't particularly matter to discuss the merits of counter-cyclical interventions but rather the sort of everyday targeting of inflation and an associated unemployment rate. Is there a good source that can explain this employment/unemployment theory of inflation? Most of what I read about inflation explains it in terms of the money supply vs. production, with only a few comments that there was a different model centered more around employment. The money supply narrative is pretty compelling, but I'm still curious about this alternate model. Or is it more of a different way of looking at essentially the same model?
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| # ? Nov 04, 2009 07:18 |
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There's a lot of reasons this is a bad idea. Off the top of my head- 1) Why is the one person unemployed out of 10? Do you think (s)he might be the least efficient worker? Remember that production is not equal to hours worked. What happens to price-level if less items are produced? Are there some ancillary costs besides wages for additional workers? 2) Let's say that there is a new need for someone to complete tasks somewhere (a job is created). Is it harder (more expensive) to hire someone who has a job or someone who doesn't have one? Do you think a job is more likely to be created if it is more expensive to be filled or cheaper/easier? Treating labor as a monolith is somewhat useful for a static situation, but the reality is that most of the time things are fairly dynamic. I don't really think most economists would agree with the plan mentioned in the 3rd paragraph. Efficient allocation of labor is pretty difficult.
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| # ? Nov 04, 2009 07:49 |
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Edit: This was posted before I read your comments, Gembolah. --- I think I'm sort of confusing things, but the basic idea is that if prices are stable then the economy will be operating at a sort of "natural" rate of unemployment. A central bank will watch pressures in the economy that might press up prices and engages operations to try to control the rate of inflation at some target level by managing interest rates, but won't typically target a specific unemployment rate. But, in my uninformed thinking, if the government acts to reduce unemployment by spending on new jobs in a situation where prices were otherwise stable and the economy is starting at the natural rate of unemployment then you will get inflationary pressure that will cause the central bank to press up interest rates and reduce employment in the private sector, which changes the composition of employment but otherwise does not reduce the unemployment rate in the long run. Or if it is paid out of current taxes then there is reduced aggregate demand which reduces private sector employment. I guess. The question I was pointing towards is whether part of the classical component of unemployment and a significant share of underemployment could be eliminated with a reduction of the work week, without this leading to inflationary pressures that would lead to higher interest rates and more unemployment. That is, whether the unemployment could be redistributed by shrinking the jobs of the majority and creating space for new ones. There are all sorts of problems with that, such as the fact that the marginal unemployed person is probably much less productive than the most productive person having their hours reduced and so on. I might be totally turned around on this point, though. break the fourth fucked around with this message at Nov 04, 2009 around 08:54 |
| # ? Nov 04, 2009 08:50 |
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There is an ideal level of unemployment that needs to be there to keep some liquidity in the job market. If nobody is looking for work or there is nobody that needs work that can be a problem if companies need to find new employees. Edit: I think you just hit on that already. Does your question not apply to salaried jobs? Changing the workweek for jobs that don't really have hours aside from "work till the job is done" wouldn't do anything. Maybe you could free up some space for people to flip burgers, but are those jobs that hard to find right now? There's usually enough turnover in that kind of work as it is. Also just a thought but it might turn out that more overtime would just end up getting paid out if business owners wouldn't be able to find productive workers. Gentle Marmot fucked around with this message at Nov 04, 2009 around 15:19 |
| # ? Nov 04, 2009 15:06 |
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I think your question boils down to weather wage negotiations are effected in the same way under your two models. If they are, the two models will behave the same with respect to inflation. If they aren't they will behave differently. I don't have but a minute to type here but I'll suggest that they aren't because of the effect of subsistence level consumption in shaping the workers side of wage negotiations. That is that the marginal effect of those 4 hours in your example if very different when they are the sum of 10 peoples 4 hour work week then when they are the entirety of one persons.
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| # ? Nov 04, 2009 15:33 |
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Gentle Marmot posted:There is an ideal level of unemployment that needs to be there to keep some liquidity in the job market. If nobody is looking for work or there is nobody that needs work that can be a problem if companies need to find new employees. You are basically saying that it is more important to keep the job market 'liquid' and cater to the needs of corporations than it is to ensure that every person who wants to work can get a job that will allow him to sustain him and possibly his family. Is that an acceptable position to hold? To add a different perspective, keeping a certain portion of the population without employment keeps pressure on those who are employed, and depresses wages, at least in some sectors, as the unemployed would rather make something than make nothing at all. These are methods of scientific industrial management - essentially, keeping employees in line with the objectives of the major shareholders/managers - and maximization of profits. A full employment scenario would make the job market more difficult for companies, but ultimately that would be for the benefit of the actual human beings (as opposed to the fictional state-created people who do the hiring) by putting some actual bargaining power in the hands of people instead of solely in the hands of the hiring corporation. In a cosmology where you assume that people are more important than corporations I can't see how this is a bad thing.
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| # ? Nov 04, 2009 21:04 |
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ufuk kongporn posted:You are basically saying that it is more important to keep the job market 'liquid' and cater to the needs of corporations than it is to ensure that every person who wants to work can get a job that will allow him to sustain him and possibly his family. Is that an acceptable position to hold? Hyperinflation? That is to say, even if full employment would benefit people as wage-earners, it might well hurt them as consumers. Aegis fucked around with this message at Nov 04, 2009 around 21:17 |
| # ? Nov 04, 2009 21:13 |
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That seems highly contextual. Nevertheless, it's a common argument raised for against unions as well. Ever notice how rarely, if ever, people raise that argument about unaccountable corporate managers who give themselves obscene salaries? Further, can you cite any examples of high average wages negatively affecting most people with overpriced consumer goods, actually happening? Also, why did you say 'hyperinflation'? Hyperinflation has nothing to do with this.
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| # ? Nov 04, 2009 22:18 |
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ufuk kongporn posted:That seems highly contextual. Nevertheless, it's a common argument raised for against unions as well. Ever notice how rarely, if ever, people raise that argument about unaccountable corporate managers who give themselves obscene salaries? No, but I also don't know of any instances where an economy actually achieved full employment in the sense we are talking about, either. Since you said you can't see how that sort of full employment could be a bad thing, I assumed we were firmly in the realm of the speculative. quote:Also, why did you say 'hyperinflation'? Hyperinflation has nothing to do with this. If I was using the term incorrectly, I apologize. I merely meant that without downward pressure on wages, there would presumably be very little to stop a vicious cycle of wage and price increases.
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| # ? Nov 04, 2009 22:35 |
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Aegis posted:No, but I also don't know of any instances where an economy actually achieved full employment in the sense we are talking about, either. Since you said you can't see how that sort of full employment could be a bad thing, I assumed we were firmly in the realm of the speculative. Hyperinflation rarely occurs when there are very few unemployed people though. It instead seems to happen far more often with a lot of unemployed people. I don't think it's very likely that full employment would cause hyperinflation, consider places that are the closest to fully employed now don't have a problem like that.
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| # ? Nov 04, 2009 22:39 |
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Inflation and deflation are almost entirely related to the money stock. Businesses cannot create a "vicious cycle of wage and price increases" unless they actually have the money to do so. We have particular kinds of mechanisms for creating and distributing money such that full employment economies are probably not feasible without monetary reform. As a result, the closest approximation of a full employment economy in recent history is probably a war economy that is usually driven by governments going into huge debt to private banks or central banks (both of whom create money in their own ways) to create the money necessary to fuel the war effort. Accordingly there is almost always inflation in wartime (and for other reasons as well). This is probably why people assume that inflation must go hand in hand with full employment.
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| # ? Nov 04, 2009 23:00 |
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ufuk kongporn posted:Some stuff "Full employment" and "job market" are fairly contradictory. Some liquidity in the job market is basically essential if you want an economy to grow. Furthermore, just because there is steady liquidity doesn't mean the same people are unemployed, there is some cycling. In general the most qualified people will stay employed and have an easier time getting a job than the least qualified people, helping to ensure some modicum of efficiency in labor. (obviously "qualified" isn't the same as "best worker") This is crappy for the least qualified people, but it also incentivizes them becoming better. Also, high wages + high prices means we're basically in the same place as "normal" wages + prices, ie the buying power is the same. The idea is that without some unemployment we get artificial inflation of prices (because of the additional inflation of costs) and people have lower buying power. (ie high wages + higher prices) Generally we see this as bad.
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| # ? Nov 04, 2009 23:16 |
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Gembolah posted:Also, high wages + high prices means we're basically in the same place as "normal" wages + prices, ie the buying power is the same. The idea is that without some unemployment we get artificial inflation of prices (because of the additional inflation of costs) and people have lower buying power. (ie high wages + higher prices) Generally we see this as bad. Inflation fundamentally is an increase in the money supply relative to the size of the economy, thus reducing the value of every individual dollar, and causing prices to slowly increase. What you suggest here is similar to the arguments used by most anti-unionists, but strangely it's not a widely used argument by economists as to why corporate management needs to be more closely regulated to prevent the decision makers from giving themselves massive, wasteful and unearned salaries. If what you say is true, then shouldn't CPI Inflation between 1945 and 1970 dwarf CPI Inflation between 1980 and 2005, since median real wages between 1945 and 1970 soared, and since 1980 they have been relatively stagnant, and unemployment was generally lower then as well? That hasn't been the case, and actually, CPI Inflation between 1980 and 2005 has been higher than the earlier period with much more median wage growth.
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| # ? Nov 05, 2009 01:52 |
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Yeah, the relationship between employment and inflation is tenuous as hell, Friedman's angry ghost aside. It sounds good in theory, but there have been too many situations where high unemployment and high inflation (or high inflation and high unemployment) have coexisted to grant it much predictive power. Certainly high employment has sweet fuckall to do with hyperinflation, that's almost always a result of governmental and security problems. In any case, few measurements of NAIRU I've seen actually hit the point where you only have cyclical unemployment. You don't have 15-20% of the population out of work (as it is when you set aside the bullshit American proxy measurement for "unemployment") for "cyclical" reasons. If you tried to convince unemployed people of that, you'd probably get punched.
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| # ? Nov 05, 2009 03:02 |
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Wasn't the NAIRU theory shown to be really drat wonky in the 90s when employment went beyond what economists believed to be safe levels and no inflation occurred?
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| # ? Nov 05, 2009 16:48 |
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Isc posted:Wasn't the NAIRU theory shown to be really drat wonky in the 90s when employment went beyond what economists believed to be safe levels and no inflation occurred?
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| # ? Nov 06, 2009 05:58 |
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Aegis posted:No, but I also don't know of any instances where an economy actually achieved full employment in the sense we are talking about, either.
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| # ? Nov 06, 2009 20:39 |
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Isc posted:Wasn't the NAIRU theory shown to be really drat wonky in the 90s when employment went beyond what economists believed to be safe levels and no inflation occurred? That's what I was going to suggest. How well did this perform in the 90s? Period of sustained low unemployment, real wage growth, massive productivity growth, and very low inflation. Granted it was only 5-6 years (1995-2000), but things were pretty good all around. Also, didn't the last big recession (1981-82) have high unemployment and high inflation? Inflation and unemployment both dropped following a recovery with ridiculously high GDP growth (6%). Makarov_ fucked around with this message at Nov 07, 2009 around 08:16 |
| # ? Nov 07, 2009 08:13 |
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Makarov_ posted:That's what I was going to suggest. How well did this perform in the 90s? Period of sustained low unemployment, real wage growth, massive productivity growth, and very low inflation. Granted it was only 5-6 years (1995-2000), but things were pretty good all around. I think the massive productivity growth is the usual explanation for how that worked. More workers were being employed, but they were each producing even more output than before.
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| # ? Nov 07, 2009 12:04 |
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The recession was about the federal funds rate, it was almost an intentional recession to beat inflation. The Fed rate raised from under 5% in 1977 to over 19% by January of 1981, quickly chopped down to 15% and then pushed back over 19% in June of 81. The fed then lowered it to around 8 1/2% in 1983. Unemployment peaks during the period in 1982 when inflation is close to bottoming. Figures from http://research.stlouisfed.org/fred2/ Also, heres a cheery graph:  The spread is your headline unemployment rate. The employment ratio is moving towards levels from when the participation rate was significantly lower.
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| # ? Nov 07, 2009 12:11 |
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McCaine posted:Most Communist countries had no unemployment.
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| # ? Nov 07, 2009 18:55 |
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I think the real question is this: If we take for granted that a certain amount of unemployment is unavoidable, even at full employment, in a properly functioning economy - and even, in some cases, perhaps preferable as stated by a couple people in this thread - then isn't there an obligation to ensure the well-being and welfare of these people who are unemployed as a result of this economic philosophy?
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| # ? Nov 07, 2009 19:32 |
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Fraction Jackson posted:I think the real question is this: Even if there is no social obligation, safety nets can increase the overall liquidity of the job market, which can eliminate a lot of losses in the economy
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| # ? Nov 08, 2009 13:06 |
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