Is there an equilibrium rate of unemployment in the long run?
This paper examines the existence and stability of a long-run equilibrium rate of unemployment in a Post-Keynesian growth model and contrasts it with the NAIRU model. In the latter the equilibrium rate of unemployment determines unanticipated inflation in the short run and actual unemployment and output in the long run. The real balance effect plays the pivotal role in the transition from the short run to the long run. For the Keynesian model we take the Marglin-Bhaduri (1990) model as our starting point and complement it by Okun's Law for the labor market and a wage curve type of relation for distribution. The distinction between wage-led and profit-led growth regimes in the Marglin-Bhaduri model turns out to be crucial for the long-run equilibrium rate of unemployment. In the profit-led regime, there is a stable equilibrium rate of unemployment that, NAIRU-like, determines growth. In the wage-led regime, however, the equilibrium rate of unemployment is not stable. The long run is thus but a succession of short-run equilibria. Therefore the goods market dominates the labor market even in the long run.
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Volume (Year): 16 (2004)
Issue (Month): 1 ()
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