Unemployment (1 Viewer)

[-pari-]

studying NAIRU ....couple of questions =)

1) the unemployed ppl that make up nairu, are essentially not part of the effective supply of labour as they do not exert pressure on wages in the labour market

could someone explain what that means?

2) known as NAIRU as it is the level of unemployment that remains if inflation is not increasing or accelerating in the economy

meaning? doesn't nairu remain [in the long term] even if inflation is increasing?

3) the natural rate does not include cyclical or classical unemployment

classical unemp. = when there is an excess supply of labour (right?)

so isn't the natural rate of unemp. essentially - at least to some extent - an excess supply of labour? because the demand for labour is already at "full employment" (or whatever) and this natural rate is leftover...excess of that demand?

4) the key benefit for the economoy as a whole arising from unemployment is that it tends to reduce infaltion [ in the short run -> phillips curve] or to decelerate inflation, following the NAIRU theory

(source: wikipedia)
but i thought the NAIRU theory says that there is no trade off between unemployment and inflation in the long run, .'. rising unemp. wont impact upon the rate of inflation....
or does it?

5) on unemployment increasing the inequality of income distribution: " the unemployed ...rely on..welfare payments & are concentrated disproportionately in the lowest decile of the distribution of household income"

what does the bit in bold mean?

 

[Riviet]

1) the unemployed ppl that make up nairu, are essentially not part of the effective supply of labour as they do not exert pressure on wages in the labour market

could someone explain what that means?

These unemployed persons aren't actively looking for a job and therefore do not participate in any sought of way in the labour market, e.g hidden unemployed. As a result they have no effect on how much labour is available (ie how many people are free and ready to be employed).

2) known as NAIRU as it is the level of unemployment that remains if inflation is not increasing or accelerating in the economy

meaning? doesn't nairu remain [in the long term] even if inflation is increasing?

It's a little badly worded. The NAIRU is the level of unemployment such that cyclical factors in the economy (e.g lower interest rates to stimulate the economy) will not lower unemployment any further but instead put upward pressure on inflation and probably accelerate inflation in the medium to long term.

 

[Sparcod]

1) the unemployed ppl that make up nairu, are essentially not part of the effective supply of labour as they do not exert pressure on wages in the labour market

could someone explain what that means?

The demand and supply of labour does affect wages.
More unemployed= lower wages..just think about it.

2) known as NAIRU as it is the level of unemployment that remains if inflation is not increasing or accelerating in the economy

meaning? doesn't nairu remain [in the long term] even if inflation is increasing?

Inflation is suppose to remain constant over the long term, doesnt it? But I think that unemployment varies as eco. growth varies.

3) the natural rate does not include cyclical or classical unemployment

classical unemp. = when there is an excess supply of labour (right?)

so isn't the natural rate of unemp. essentially - at least to some extent - an excess supply of labour? because the demand for labour is already at "full employment" (or whatever) and this natural rate is leftover...excess of that demand?

Classical unemployment?

4) the key benefit for the economoy as a whole arising from unemployment is that it tends to reduce infaltion [ in the short run -> phillips curve] or to decelerate inflation, following the NAIRU theory

Bad spelling there but anyways, eco. growth ties in inflation with unemployment. Eg. lower employment= higher wages (reduced labour supply and firms want to attract more workers) +inflationary expectations+more spending (due to higher wages)= demand and cost inflation.

5) on unemployment increasing the inequality of income distribution: " the unemployed ...rely on..welfare payments & are concentrated disproportionately in the lowest decile of the distribution of household income"

Just note that money earnt by welfare recipients is very little and most of them earn all their money that way. However, when unemployment increases, those who have high incomes see their incomes rise faster.