Customer Markets, Trade Unions and Stagflation

Abstract

Customer market analysis combined with trade-union wage setting is shown to yield a range of equilibrium levels of employment. Only when employment is forced outside this range can the disequilibrium acceleration or d eceleration of the price level be expected to operate. Numerical calc ulations suggest that this range is quite large, implying that the ma ximum level of unemployment consistent with nondecelerating inflation is way above the minimum level of unemployment consistent with nonac celerating inflation. A range of equilibrium employment levels appear s to be in closer agreement with empirical experience than a unique, "natural" rate of unemployment. Copyright 1987 by The Review of Economic Studies Limited.

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