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Inflation, Unemployment and Unemployment Benefits
Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 96 (1976), Iss. 3 : pp. 235–260
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Hagen, Kurt von dem
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Abstract
Because of their countercyclical swings unemployment benefits generally are regarded as being “stabilizing” with respect to employment, income and prices. In a short-run macro model which explicitly includes the financial part of the system, this conception is shown to be correct if “stabilizing” represents a growth in the set of parametric configurations which insure stability. However, if because of the benefit system a rise in unemployment no longer induces wage rate changes to fall below the rate of inflation, the economy will tend towards a certain rate of unemployment accompanied by inflation. In the model presented, changes in employment can then be realized only by exogenous shifts of policy parameters.