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- Title
Customer Markets, Trade Unions and Stagflation.
- Authors
McDonald, Ian M.
- Abstract
It is shown that customer market analysis combined with trade union wage setting can yield a range of equilibrium levels of employment. Only when employment is forced outside this range can the disequilibrium acceleration or deceleration of prices be expected to operate. Numerical calculations with the customer market model suggest that this range is quite large, implying that the maximum level of unemployment consistent with non-decelerating inflation is way above the minimum level of unemployment consistent with non-accelerating inflation. This model with its range of equilibrium levels appears to be in closer agreement with empirical experience than natural rate of unemployment models. <BR> This paper has shown how customer market analysis can yield a range of equilibrium employment levels. This range separates the zone of increasing inflation from the zone of decreasing inflation. In the analysis economic agents optimize subject to the constraints they face. Consequently the limits on price and wage flexibility that emerge result from maximizing behavior. Furthermore, in the model of this paper individuals are not mistaken about the true values of relative prices within the equilibrium range. Rather, the information problem that the customer market analysis addresses is a problem of ignorance of possible changes in other firm's prices. The model has been made as simple as possible to highlight the important implications that can be drawn from the costly flow of information outside a firm's clientele, the feature of customer markets.
- Subjects
LABOR unions; EFFECT of inflation on unemployment; COMMERCIAL markets; PRICE inflation; STAGNATION (Economics); EMPLOYMENT
- Publication
Economica, 1987, Vol 54, Issue 214, p139
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2554387