it's partly a matter of job insecurity and the stuff that Tom Walker quotes about, along with the role of imports. Also, the standard math about the (non-Paul) Phillips curve assumed that nominal wages rise with labor productivity in the trend, so that there's no upward trend in unit labor costs (ULC). Assuming a constant mark-up on ULC, there's no upward trend in prices. If there's a upward trend in prices built into the structure of the economy, an extra amount of unemployment is required (in the standard model) to prevent accelerating inflation.
But nominal wage rates have not been rising with labor productivity in the US lately, so that less unemployment is needed to prevent accelerating inflation (in the standard model). In fact, if nominal wages are falling far behind productivity, then unemployment must be below the hypothesized "natural" rate to prevent accelerating disinflation and even deflation. A lot of this is missed by the orthodox because they do their Phillips curve merging the link between unemployment and wages with that between wages and prices. (The common journalistic assumption these days is that labor productivity growth undermines inflation. That's true, but it wasn't in the "good old days" when nominal wages moved roughly with labor productivity in the trend.) JD On 1/20/06, paul phillips <[EMAIL PROTECTED]> wrote: > Jim, > Can you explain Greenspan's reasoning for suggesting this? > Paul P > > Jim Devine wrote: > > >Alan Greenspan agrees that, as currently measured, the unemployment > >rate doesn't mean what it used to, so that 4% unemployment now might > >be the equivalent of 5% 25 years ago. > > > >Jim Devine > > > > > > > > > > > -- > No virus found in this outgoing message. > Checked by AVG Free Edition. > Version: 7.1.375 / Virus Database: 267.14.21/236 - Release Date: 1/20/06 > -- Jim Devine "The price one pays for pursuing any profession or calling is an intimate knowledge of its ugly side." -- James Baldwin
