Applied Macroeconomics: Employment, Growth and Inflation

by Vivek Moorthy

When the demand for labour is high, and there are very few unemployed, we should expect workers to bid up wages quite rapidly, each firm and each industry being continually tempted to offer a little above the prevailing wage rates to attract the most suitable labour from other firms and industries. On the other hand it appears that workers are reluctant to offer their services at less than the prevailing wage rates when the demand for labour is low and unemployment is high so that wage rates fall only very slowly. The relation between unemployment and the rate of change of wage rates is therefore likely to be highly non-linear.”