Natural rate of unemployment

Discussion in 'Economy' started by Whipp, Dec 15, 2010.

  1. Whipp
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    Whipp Rookie

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    A fairly standard lesson in economic theory today but rarely spoken in the mainstream is Milton Friedmans NAIRU . the Natural rate of unemployment.

    Though the theory is prize winning and complex like most stuff in economics its actually really simple hidden in jargon.

    There is level of unemployment inthe economy 'required' to keep prices..and thus wages..stable..if you have to low unemployment inflation will occur.

    Most people still beleive the goverment actually seeks to give everyone a job but this has long since been abondened in light of this 'theory'

    Basically speaking the way your employes out there can ensure your wage is kept a certain level is by knowing if you quit someone else is willing to take your job for that wage..if noone was willing to do so..you coudl ask for more money.

    In the same way today we see that immigrants though often blamed for economic failings crime etc are widely encouraged to enter the labour market in order to ensure a constant supply of people willing to accept very low wages.

    In light of globaisation and now the mobility of companies to travel overseas at limited cost they now have access to ecnomically viable cheap sources of labour to do almost any job.

    So how can any governement today realistically expect to reduce unemployment without reducing real wages of its people..

    and in the long term do we just have to accept we 'need' unemployed and desperate people to keep our system stable.
     
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  2. loosecannon
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    loosecannon Senior Member

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    "So how can any governement today realistically expect to reduce unemployment without reducing real wages of its people.."

    They can't in the developed economies, but wages are rising in the developing world economies. China, India etc.

    You strike a good point tho, Milton's theory was popular imo because it reduced the power of labor (increasing profits) not because it was a meaningful regulatory tool like targeted interest rates, or adjusting reserve requirements which effect the money supply.

    "and in the long term do we just have to accept we 'need' unemployed and desperate people to keep our system stable."

    Don't break your neck looking behind you but there is an even more popular econ theory that says we NEED a growing workforce to maintain economic growth and to pay for our entitlements.

    It's another bogus theory imo but widely adopted by fiscal planners. And it is squarely at odds with the maximum employment theory you are discussing.
     
    Last edited: Dec 15, 2010
  3. william the wie
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    william the wie Gold Member

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    Three problems:

    If you look at the summary of micro-economies in any economy it does not accord with macro-economic measures. For example monthly unemployment data has a margin of error of 129,000 according to John Williams. The net national investment number is distorted by single year inflation adjustments for multi-year investments. All of the macro-numbers have similar problems.

    Current immigration policy that favors guest workers over immigrants is insane. Corporate taxes actively encourages outsourcing and automation.

    There is no evidence that true general equilibrium has root in reality.
     

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