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Union Power and Australia’s inflation Barrier, 1965:4 to 2004:3

Author

Listed:
  • Ian McDonald

    (University of Melbourne)

  • Jenny Lye

    (University of Melbourne)

Abstract

This paper considers the view that trade union power played a major role in the deterioration of macroeconomic performance in Australia in the 1970s and that the subsequent decrease in trade union power has improved Australia’s macroeconomic possibilities. Using the model of a range of equilibria, it is shown that the evidence supports these views. Increases in trade union power and unemployment benefits, the latter increasing the reservation wage upon which bargained wages are based, shifted the inflation barrier to higher rates of unemployment in the 1970s. Subsequently, the decrease in trade union power has reversed this shift such that at the end of the period, in 2003:3, the inflation barrier is at a rate of unemployment of 3.1 per cent.

Suggested Citation

  • Ian McDonald & Jenny Lye, 2006. "Union Power and Australia’s inflation Barrier, 1965:4 to 2004:3," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 9(3), pages 287-304, September.
    • Handle: RePEc:ozl:journl:v:9:y:2006:i:3:p:287-304
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    References listed on IDEAS

    as
    1. Corden, W M, 1979. "Wages and Unemployment in Australia," The Economic Record, The Economic Society of Australia, vol. 55(148), pages 1-19, March.
    2. W. M. Corden, 1979. "Wages, Iflation and Unemployment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 12(1), pages 69-70, April.
    3. Ian M. McDonald, 2002. "Equilibrium unemployment: Theory and measurement in Australia using the Phillips curve," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 451-470, December.
    4. W. M. Corden, 1979. "Wages and Unemployment in Australia," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 1-19, March.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. P. Sheehan & B. Derody & P. Rosendale, 1979. "An Assessment of Recent Empirical Work Relevant to Macroeconomic Policy in Australian," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 12(1), pages 33-61, April.
    7. McDonald, Ian M & Suen, Anthony, 1992. "On the Measurement and Determination of Trade Union Power," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(2), pages 209-224, May.
    8. Horne, Jocelyn & McDonald, Ian M, 1984. "Rational Expectations, Gradual Price Adjustment and Monetary Policy in Australia," Australian Economic Papers, Wiley Blackwell, vol. 23(42), pages 79-90, June.
    9. Jenny N. Lye & Ian M. McDonald, 2004. "The Effectiveness of Incomes Policies, in Australia Bargaining and Inflation Targetting Enterprise," Australian Economic Papers, Wiley Blackwell, vol. 43(1), pages 21-38, March.
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    Citations

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    Cited by:

    1. Ian McDonald, 2009. "Behavioural macroeconomics and wage and price setting: Developing some early insights of John Maynard Keynes and Joan Robinson," CAMA Working Papers 2009-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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    More about this item

    Keywords

    Price Level; Inflation; Deflation; Monetary Policy; Central Banking; and the Supply of Money and Credit; Fiscal Policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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