?url_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Adc&rft.relation=https%3A%2F%2Fmpra.ub.uni-muenchen.de%2F26149%2F&rft.title=Background+Paper+on+Inflation+and+Unemployment&rft.creator=Grady%2C+Patrick&rft.subject=E24+-+Employment+%3B+Unemployment+%3B+Wages+%3B+Intergenerational+Income+Distribution+%3B+Aggregate+Human+Capital+%3B+Aggregate+Labor+Productivity&rft.subject=E31+-+Price+Level+%3B+Inflation+%3B+Deflation&rft.description=The+purpose+of+this+paper+is+to+provide+background+on+the%0Atrade-off+between+inflation+and+unemployment+to+assist+the%0ACommission+of+Inquiry+on+Unemployment+Insurance+in+the%0Apreparation+of+its+report.+The+main+issues+from+the+point+of%0Aview+of+the+Commission+are+the+existence+of+a+trade-off+between+inflation+and+unemployment+and+the+effects+of+Unemployment+Insurance+on+the+trade-off.+To+shed+light+on+these+issues%2C+the+paper+reviews+the+literature+on+the+relationship+between+the+rate+of+change+of+wages+and+the+rate+of+unemployment.%0A%0AThe+expectations-augmented+Phillips+curve+paradigm+for+wage%0Adetermination+is+reviewed+in+the+second+section+of+the+paper.+A+full+exposition+of+its+theoretical+rationale+and+implications+is+provided.+According+to+this+theory%2C+the+rate+of+increase+of+wages+is+a+function+of+the+the+gap+between+the+actual+and+non-accelerating+inflation+rate+of+unemployment%2C+and+of+the+expected+rate+of+price+inflation.+Other+variables+such+as+catch-up+for+real+wage+losses+and+profitablity+have+also+been+included+in+wage+equations.+An+important+implication+of+the+extended+Phillips+curve+model%2C+which+is+emphasized+in+the+paper%2C+is+that+there+is+no+long+run+trade-off+between+higher+inflation+and+permanently+lower+unemployment%2C+but+only+a+short-run+trade-off+between+higher+inflation+and+temporarily+lower+unemployment.%0A%0AThe+Canadian+empirical+literature+on+the+relationship+between+wages+on+the+one+hand+and+unemployment+and+inflationary+expectations+(based+on+the+cost+of+living)+on+the+other+is+reviewed+in+the+third+section+of+the+paper.+This+review%2C+which+focuses+on+the+studies+done+in+the+last+ten+years%2C+includes+estimates+made+using+micro-data+on+wage+settlements+as+well+as+macro+wage+equations.+The+wage+sectors+of+the+main+Canadian+macroeconomic+models+are+also+canvassed.+Tabular+summaries+of+the+key+results+of+the+studies+are+provided.%0A%0AEstimates+of+the+impact+of+variables+other+than+labour+market+tightness+and+inflation+expectations+such+as+productivity%2C+catch-up%2C+and+profitability%2C+which+are+included+in+wage+equations%2C+are+also+presented.%0A%0AThree+important+findings+of+the+literature+search+on+wage%0Abehaviour+and+unemployment%2C+which+are+of+particular+interest+and+which+are+summarized+in+tabular+form+in+the+third+section+of+the+paper%2C+are+empirical+estimates+of%3A%0A%0A-+the+Non-Accelerating+Inflation+Rate+of+Unemployment+(NAIRU)+or+natural+rate+of+unemployment+that+is+believed+to+be+consistent+with+the+maintenance+of+a+constant+rate+of%0Ainflation%3B%0A%0A-+the+short+term+trade-off+between+inflation+and+unemployment+based+on+the+coefficient+and+lag+structure+of+the+unemployment+rate+in+the+wage+equation%3B+and%0A%0A-+the+impact+of+the+1971+and+1979+changes+in+Unemployment%0AInsurance+on+the+natural+(non-accelerating+inflation)+rate%0Aof+unemployment.%0A%0AThe+estimates+of+the+impact+of+changes+in+the+Unemployment%0AInsurance+on+the+natural+rate+of+unemployment+should+be+of%0Aparticular+value+in+any+consideration+of+further+changes+to+that+program.&rft.date=1985-12-23&rft.type=MPRA+Paper&rft.type=NonPeerReviewed&rft.format=application%2Fpdf&rft.language=en&rft.identifier=https%3A%2F%2Fmpra.ub.uni-muenchen.de%2F26149%2F1%2FMPRA_paper_26149.pdf&rft.identifier=++Grady%2C+Patrick++(1985)%3A+Background+Paper+on+Inflation+and+Unemployment.++++&rft.language=en