The Macroeconomics of Unemployment

Abstract

Abstract In a closed economy with competitive corporations and non-competitive wage determination, there is a balance level of unemployment in which expectations are met. Derivations from equilibrium can arise via demand shocks or real shocks, the most significant of which are technology shocks and wage pressure shocks. Expansionary aggregate demand shocks can produce real wage movements on either side, whereas favourable technology shocks lead to real wage increases. Decreases in wage pressure normally lead to decreases in real wages, on the other hand. Therefore, there is an ‘equilibrium’ level of unemployment uniform with both stable inflation and balanced trading.

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