Abstract

On the Interrelationship of Inflation, Unemployment Rate and Income Distribution in the Federal Republic of Germany, 1960 - 1976

(1) The relationship between the inflation rate and underemployment as evidenced by the data for the Federal Republic of Germany from 1960 to 1976 reveals a long-term tendency towards acceleration of both magnitudes with an increasingly strong response of the unemployment rate. Therefore the traditional convex path of the modified Phillip’s curve relative to the origin of the coordinates cannot be demonstrated for this period; on the contrary, over the short run there is a spiral path around the long-term trend with increasing loop diameters. (2) Deceleration of inflation with constant or falling inflation rates occurs increasingly at the expense of employment objective until a decisive reduction of the wage share results, which initiates a reversed trend. Hence, the hypothesis of a Phillips’ curve rising vertically over a structure- and instrument- typical “natural rate of underemployment” is false for the Federal Republic in the observed period of 17 years; accordingly, it is also impossible to uphold the assertion of independence of the monetary from the real sector in this context. (3) The wage share, as an intermittent variable, shows significantly high correlations with both the inflation rate and - with a time-lag of one year - the unemployment rate. Therefore the statistically necessary condition is fulfilled for analysis of income distribution and distribution struggle as important determinants of the change in the cyclical components: value of money and employment. On this basis of finding, the hypothesis advanced by neo-quantity theory of private sector which has an inherent tendency towards stability has become contestable, for the struggle relating to the distribution of wage and profit income takes place predominantly in the private sectcr. (4) On account of the phase-typical, differing functional relationship between the inflation rate and the unemployment rate, the determination cf the statistical correlation cannot be tested on the basis of a linear or hyperbolic relation. On the contrary, a test function appropriate to the spiral path must be formulated. From hypothetically assumed path of the inflation-wage rate relation and the unemployment rate-wage rate relation, all relationship to be considered between the inflation rate and the unemployment rate can be simulated