1
Vienna University of Economics & B.A.
Department of Economics Working Paper Series
ISTHE NAIRUTHEORY A MONETARIST, NEW KEYNESIAN, POST KEYNESIAN OR A
MARXIST THEORY?
Engelbert Stockhammer *
Working Paper No. 96
March 2006
Abstract
The NAIRU theory has become the mainstream theory in explaining
unemployment in Europe and is often used to justify demands for a
cutback of the welfare state, reducing unemployment benefits,
reducing minimum wages, decentralizing collective bargaining etc.
Close inspection reveals that it nonetheless shares some arguments
with Post Keynesian and even Marxist theory. The paper proposes an
underdetermined, encompassing NAIRU model, which is consistent
with several theoretical tradtions. Depending on the closure with
respect to demand formation and determination of the NAIRU itself,
the model allows for New Keynesian, Post Keynesian and Marxist
results.
Keywords: NAIRU; Unemployment; New Keynesian Economics; Post Keynesian
Economics; Marxian Economics
JEL-Code: B50; E12; E24
Address of the author:
Institut für Geld- und Finanzpolitik
Vienna University of Economics & B.A.
Augasse 2 - 6, 1090 Vienna, Austria
Engelbert.Stockhammer@wu-wien.ac.at
http://www.wu-wien.ac.at/inst/vw1/stockham/
______________________
* Earlier versions of the paper have been presented at the Hetecon Conference, July 2005,
London, and Working Group Keynesian Theory, Berlin Oct 2005. The author is indebted to
the participants of the discussions there, in particular to Eckhard Hein, Jürgen Kromphardt
and Özlem Onaran, for helpful comments. All remaining errors, however, are the author's.
Published online by
http://epub.wu-wien.ac.at
2
A NAIRU reference model ................................................................................................ 5
The NAIRU theory and the NAIRU story ..................................................................... 6
The natural rate of unemployment - a monetarist NAIRU?............................................... 7
The New Keynesian NAIRU............................................................................................ 10
From the NK NAIRU model to the NAIRU story....................................................... 12
Unemployment hysteresis ............................................................................................ 13
Post Keynesian NAIRU ................................................................................................... 15
Post Keynesian reactions to the NAIRU...................................................................... 15
Conflict inflation.......................................................................................................... 16
A Post Keynesian NAIRU model................................................................................. 17
A Marxist quasi-NAIRU .................................................................................................. 21
Conclusion........................................................................................................................ 25
References ........................................................................................................................ 27
3
Is the NAIRU theory a Monetarist, New Keynesian, Post Keynesian or a Marxist
theory?
The question this paper poses in its title may sound odd at first. Isn't it clear what sort of
theory the NAIRU is? No lesser authorities than L. Ball and G. Mankiw assure us that
"the NAIRU is approximately a synonym for the natural rate of unemployment" (Ball and
Mankiw 2002, 115). And equally authoritative from the other political spectrum S. de
Brunhoff, a senior Marxist monetary theoretician rejects the NAIRU since the "NAIRU
would appear to be a statistics-dominated instrument of wage supervision, to be used by those
who fear that low unemployment might undermine wage moderation." (de Brunhoff 2005,
216) Somewhat less in line with conventional wisdome R Pollin argues that "Marx and
Kalecki also share a common conclusion with natural rate proponents, in that they would all
agree that positive unemployment rates are the outgrowth of class struggle over distribution of
income and political power."(Pollin 1998, 5f). Moreover, de Brunhoff argues that "The
NAIRU model was developed by Post Keynesian economists."(de Brunhoff 2005, 216) and
implicates P. Davidson in the crime scene. Davidson himself however seeks to "provide a
Post Keynesian explanation fo persistent high unemployment rates experienced by OECD
nations since 1973. (...) so that the reader can comprehend why this explanation differs from
that of NAIRU proponents" (Davidson 1998, 818), which would certainly suggest that the
NAIRU is at odds with the Post Keynesian theory. Overall, it is certainyl fair to say that there
is need for a clarification of the theoretical foudnation of the NAIRU.
At the core of the NAIRU theory is the claim that at any point in time there is a rate of
unemployment at which inflation is constant. Many, if not most, economists would nowadays
agree with this assertion, however this does not prevent them from disagreeing about the
theoretical interpretation of this relation, its theoretical foundation and its policy implications.
This paper will argue that the NAIRU theory is an interesting theoretical hybrid and that it can
be given Marxian, Post Keynesian and New Keynesian interpretations. However the
Monetarist natural rate of unemployment should not be confused with the NAIRU, since the
former is a theory of voluntary unemployment. The task of this paper is to identify the
differences in interpretation. To do so, a core NAIRU model will be proposed and alternative
closures for the respective theories will suggested. By design thus we will try to keep things
as simple as possible to clarify the key differences. Two areas of difference are identified.
First, the demand function. Here the question is what the effect of inflation on output is and
4
what the effect of a change in the wage share on output is whether NAIRU is a strong
attractor for actual unemployment. Second, the determination of the NAIRU. Here the
question is how the NAIRU is determined, in particular whether it is exogenous or not.
A few clarifications regarding the scope of the paper is in place. By design we will try to keep
things simple and comparable. This implies that several sophistications that are important and
ideosyncratic to a theory will have to be brushed aside. Among these, three issues stand out.
First, empirical research in the New Keynesian tradition has recently highlighted the role of
interactions between demand shocks, supply shocks and labor market institutions (E.g.
Blanchard and Wolfers 2000). While potentially empirically important, a treatment of various
interaction effects for all the theories discussed here is well beyond the scope of the paper.
Second, several Post Keynesian authors have argued that there are non-linearities in the
relation between unemployment and prices. We will assume standard linear relations
throughout the paper. Introducing non-linearities will not invalidate the different mechanisms
highlighted in this paper.
Third this paper will be based on an equilibrium framework. Many Post Keynesians and most
Marxists would feel that this framework is inappropriate to capture their respective
arguments. And rightly so. Argueably neither Marx nor Keynes conceptualized the economic
processes as moving smoothly from one well defined equilibrium to another. The use of a
standard comparative statics framework, thus fails to do justice to each theory, but it will help
highlight the difference between the theories. In doing so, necessarily, other important
differences, here dynamics, are ignored.
The paper is structured as follows. Section one presents the core model and distinguishes
between the NAIRU theory and the NAIRU story of European unemployment. Section two
explores whether the Monetarist natural rate of unemployment is indeed similar to the
NAIRU. Section three presents the New Keynesian NAIRU theory and highlight the
ambiguous role of hysteresis in this theory. In section four a Post Keynesian approach based
on the so-called conflict inflation is presented as well as the more genuine role for hysteresis.
Section five discusses Marxian theory and its ambivalent position with respect to the NAIRU.
Section six concludes.
5
A NAIRU reference model
Table 1 summarizes a NAIRU reference modelfor a closed economy. Nominal wages are set
in a bargaining process. Workers' bargaining position and thus wage claims (equation 1)
depend on various exogenous factors and negatively on the rate of unemployment. This is
also often called the wage setting curve. The precise interpretation of this relation as well as
the determinants of exogenous factors influencing wage claims will differ according to
theory.
INSERT TABLE 1 about here
Firms have the ability to influence prices and set prices by charging a mark up on production
costs. The (intended) mark up is determined exogenously (eq. 2). It is assumed that capitalists
as well as workers are imperfectly able to protect themselves against unexpected inflation.
Actual wage and profit shares (eq. 3 and 4) thus depend on unanticipated inflation. At first it
may appear counterintuitive to have the actual profit share being affected by unanticipated
inflation, after all in the NAIRU theories to be discussed, it is assumed that firms do have
market power and thus set prices. However, a large body of theoretical and empirical work
suggests that prices sticky and inflation is persistent. The implication of this of course is that
in many cases wage and cost increases will not be fully passed on to prices. Indeed, the model
presented here is a simplified version of a fully fledged model, which would distinguish
between wage inflation and price inflation (see various papers by Flaschel). We avoid this
complication because this would contribute little to the understanding of the difference of the
theories to be discussed. The distributional effects of this inflation depend on the speed and
frequency with which wages and prices are adjusted.
Following standard practice we assume throughout the paper that people form adaptive
expectations about price inflation (eq. 6). The assumption is made for convenience. The
difference between the theories discussed does not lie in different assumptions about the
formation of expectations. As second convenient auxiliary assumption is an employment
function according to which unemployment depends on output (7). This is an Okun's Law-
type relation that is written in levels rather than differences.
6
From the above equations we can derive the familiar expectations-augmented Phillips curve:
[ ] )/()/(1 2212200 wuwwwp +-++-=  . (10)
In the following the version of the Phillips curve that will be used is the follwing:
[ ] )/()/()/(1 22122122001 wywwnwwwpp tt +++-++-+= -  (11)
Alternatively we can solve for unemployment:
122 /)()( wpwuyu N +-=  , (12)
where ( ) 100 /1 wwuN -+= 
The empirical interpretation of the NAIRU model can focus either on the explanation of
inflation or on the explanation of unemployment. It seems that in the USA the NAIRU model
is implicitly interpreted as a theory of inflation. Most authors criticize or defend the NAIRU
model based on its ability to explain the development of inflation(Gordon 1997, Staiger et al
1997). In Europe, on the other hand, the NAIRU is understood as a theory that ought to be
able to explain unemployment ex ante, i.e. exogenous variables that supposedly determine the
NAIRU also ought to explain actual unemployment. In other words, in the USA the NAIRU
is mostly interpreted from the point of view of a central banker, but in Europe from the view
point of a labor market reformer.
The model is not closed yet, since nothing has been said about demand formationand about
the evolution of the NAIRU over time. This paper will propose two equations, the demand
closure (eq. 8) and the NAIRU closure (9). It will be argued that substantial differences in
interpretation and terminology exist between the Monetarist, New Keynesians, Post
Keynesian and Marxist theories, but different specifications of these two equations go a long
way in illustrating these differences, while leaving equations (1) to (7) unchanged.
The NAIRU theory and the NAIRU story
The NAIRU theory is, in Europe, associated with a particular explanation of unemployment.
Before we proceed with the theoretical discussion a digression on policy implications is
necessary. We will distinguish carefully between the NAIRU model and the NAIRU story
7
regarding European unemployment. The NAIRU model, outlined above, is understood as a
general model of output, employment and inflation that allows for inflation resulting from
conflicting income claims. Such models imply that at any point in time there will exist an
inflation barrier, the NAIRU, such that if demand took unemployment below that barrier then
inflation would tend to rise. The NAIRU story is understood as a specific interpretation of the
model. It involves two claims. First that the NAIRU is determined exogenously by labor
market institutions, which are mostly subject to policy. Second that changes in the NAIRU in
a strong sense of the word cause changes in actual unemployment (rather than vice versa or a
third variable affecting both). Consequently the NAIRU serves as a strong attractor for actual
unemployment. The NAIRU story thus claims that the rise of unemployment in Europe is due
to labor market inflexibility: changes in the NAIRU over the past decades have been due to
wage-push factors conveniently summarized as overgenerous welfare states.
The natural rate of unemployment - a monetarist NAIRU?
Friedman (1969) and Phelps (1968) laid the cornerstone for the later discussions of the
NAIRU by proposing the long-run vertical Phillips Curve. Friedman famously baptized the
unemployment rate at which inflation would be constant the "natural rate of unemployment".
Some, mostly American, economists do maintain that "the NAIRU is approximately a
synonym for the natural rate of unemployment" (Ball and Mankiw 2002, 115). It will be
argued that this is at best misleading.
Friedman's famous (1968) paper does not offer a rigorous analysis. Rather he asserts that,
given certain frictions, the Walrasian systemwill ground out an equilibrium rate of
unemployment, labelled the natural rate of unemployment in analogy to Wicksell's natural
rate of interest. Friedman's definition of the natural rate as well as the description of the forces
that will push actual unemployment towards its natural level are cryptic.
"At any moment in time there is some level of unemployment which has the property
that it is consistent with equilibrium in the structure of real wages ... The 'natural rate
of unemployment' ... is the level that would be ground out by the Walrasian system of
general equilibrium equations, provided that there is embedded in them the actual
structural characteristics of the labor and commodity markets, including market
imperfections, stochastic variability in demands and supplies, the costs of gathering
information about job vacancies, and labor availabilities, the costs of mobility and so
on." (Friedman 1968, p. 8)
8
Asserting that the economy does gravitate to the NRU, Friedman goes on to explain that
attempts to influence unemployment will result only in higher inflation. People's inflationary
expectations will be based on past inflation rates. Unexpected inflation can thus increase the
labour supply in the short run and therefore output, but once people realize that inflation is
higher than expected, real variables, including the rate of unemployment, will return to their
equilibrium level and prices will increase.
In his Nobel Lecture Friedman (1977) elaborates further. A nominal demand shock that is not
properly understood by firms and workers may be misinterpreted due to rising sectoral prices.
Thus workers may offer more labor since they believe that real wages have increased,
whereas in fact only nominal wages have. Firms may hire more workers because they think
the real product wage (i.e. deflated by sectoral prices) has fallen. Unemployment increases
because workers quit and searching for new, better paying jobs. Unemployment in
Friedmann's theory is search unemployment. Overall, the changes in employment happen
because of misperceptions of workers and firms.
Thus instead of (12) the relation between unemployment and inflation should rather be
written as:
( ) 122100 /))((/1 wwypwwu +--+=  (12')
Here inflation is a function of the demand shock and because of price misperceptions
unemployment reacts. In the Monetarist argument prices change before or simultaneously
with quantities and employment. Note that if prices were slow in adjusting, there would be no
reason for workers or firms to adjust their employment decisions. Curiously this is not how
modern central banks think that monetary policy is operating. Ehrbar et al (2003) in a
summary of the ECB's Euroarea study on monetary policy argues that changes in monetary
policy are quick in affecting output, but slow in affecting prices.
The demand closure of Monetarists is a standard Pigou or Keynes effect: inflation will
negatively affect demand ( 02 <y ),given a certain supply of money. The effect of income
distribution on demand is neglected ( 03 =y ). The Monetarist demand closure thus becomes:
( )pmyyy -+= 20 (13.Mo)
9
where m is the growth rate of the money supply (set by the Central Bank)
As to the NAIRU closure Friedman agues that the NRU is given exogenously. Friedman
(1977) mentions two factors that will empirically be important in determining the NRU:
demographics and unemployment. The demographic structure matters because different age
groups have different rates of mobility (and mobility by assumption implies spells of
unemployment). Unemployment benefits matter because they encourage workers to search for
jobs longer. More generally he argues that the NRU depends on real as opposed to monetary
factors (Friedman 1977, 458). There is no indication that the NRU would depend on actual
unemployment (thus 0= ), indeed demand shocks for Friedman are monetary shocks.
Equation (14) therefore vanishes and NRU is determined exogenously. Thus second
Monetarist closure becomes:
( )= ,dfuN 14.Mo
where d denotes the demographic structure and  various relevant labor market institutions.
Figure 1 summarizes the Monetarist argument. In the (p, 1-u) space the Phillips curve (PC)
has a positive slope and the demand function (uIS
) a negative slope. Actual unemployment
will only deviate form the NRU if there is unexpected inflation. Due to adaptive expectations
the PC-curve will shift upwards the next period such that actual unemployment will approach
the NRU. The ensuring equilibrium is thus stable and, since the NRU was assumed to be
exogenous, the NRU serves as an attractor for actual unemployment.
insert FIGURE 1 about here
How similar is the NRU to the NAIRU? While the NRU concept does lead to similar policy
conclusions as the NAIRU theory and, indeed, the two are often conflated, as witnessed by
Ball and Mankiw 2002,1
there are important differences in the theoretical foundation. NRU is
still founded on a Walrasian competitive markets. Snowdon, Vane and Wynarczyk point out:
"The crucial difference between these concepts relates to their micro foundations.
Friedman's natural rate is a market-clearing concept, whereas the NAIRU is the rate of
1
One other remarkable example of such a conflation is Blanchard's Macroeconomics textbook.
10
unemployment which generates consistency between the target real wage of workers
and the feasible real wage determined by labour productivity and the size of a firm's
mark up. Since the NAIRU is determined by the balance of power between workers
and firms, the micro foundations of the NAIRU relate theories of imperfect
competition in the labour and production markets." (Snowdon, Vane and Wynarczyk
1994, 323).
On the labour market a competitive labor demand function and a labor supply curve that can
be derived from individual income leisure trade off interact. The NAIRU model, onthe other
hand, is founded on bargaining models, i.e. there is an intrinsic conflict of interest between
workers and firms that is mediated not by the market but by a bargaining process.2
The key
difference conceptually is that in Friedman's NRU is a theory of voluntary unemployment.
The NAIRU model, as understood in this paper, is a theory of involuntary unemployment.3
Therefore we conclude that, despite similarities in the policy conclusion, the Monetarist NRU
is a distinct theory and not a variant of the NAIRU theory.
The New Keynesian NAIRU
New Keynesian (NK) theory maintains the perfectly competitive labor market as a reference
system, but situates the actual analysis in an imperfect competition framework. New
Keynesians pride themselves in being able in providing microfoundations for their models.
What is labeled "wage claims function" here is usually called the "wage setting function", and
is interpreted as the outcome of the bargaining process between labor and capital. Our profit
claims function is called price setting function and is interpreted as the price setting behavior
by a firm with market power. Consequently, the target profit claims, in this interpretation,
depend solely on the market power of the firm (as measured by the demand elasticity faced by
the firm, since the latter is assumed to be profit maximizing). Moreover, in empiricalresearch
it is usually assumed constant (e.g. Nickell 1997, 1998).
Equations 1 to 7 would be acceptable to New Keynesians without substantial modifcaitons.
Indeed this set of equations has been inspired by Nickell (1998). Thus we only need to
investigate the demand closure and the NAIRU closure.
2
Carlin and Soskice 1990 make a similar point.
3
This is another important difference in the interpretation of the NAIRU on the two sides of the Atlantic. While
hardly any economist in Europe would associate the NAIRU with voluntary unemployment, many in the USA
do.
11
There are two versions of the New Keynesian demand closure. The first is a reproduction of
the Monetarist price effect. Layard, Nickell and Jackman (1991) and Nickell (1998) for
example follow this path. However, few economists, certainly few Central Bankers, these
days believe that the money supply is given exogenously or can be controlled by the Central
Bank. The more genuine and up to date New Keynesian closure does not rely on real balance
effects of various sorts, but on central bank behavior. Based on a Taylor Rule, it is presumed
that Central Banks increase interest rates if inflation exceed their target inflation (eq. 15).4
Effects of income distribution on demand are ignored (y3=0). The NK demand closure thus is:
( )piyyyIS
-+= 20 with 02 <y 13.NK
and the Central Bank's reaction function is
( )tpiipi -+=- 20 (15)
The IS curve including central bank behavior then becomes
piytiyiyyy CBIS
2222020 +-+=-
(16)
The NAIRU in the New Keynesian interpretation depends on labor market institutions that
determine wage claims (the so-called wage push factors) and on the market power of firms. In
empirical research, however, the latter are routinely ignored. For practical purposes thus the
target wage share and consequently the NAIRU is thought of depending on exogenous labor
market institutions, in particular welfare state characteristics, in particular the level of
minimum wages, the level and duration of unemployment benefits etc. In combination with a
given market power of firms, the NAIRU is thus assumed to be determined exogenously. Like
with Monetarists 0= and (9) vanishes. Instead we get:
( )= fuN 9.NK
While 9.NK may look similar to 9.Mo, its interpretation is quite different. Whereas in the
Monetarist version higher unemployment benefits increase the duration of unemployment of
4
Empirical Taylor rules also include a term for the output gap. This complication is ignored here. And indeed
with the assumed employment function (7) this would not be very interesting. These second type of New
Keynesian NAIRU models have also become known as New Consensus models (Romer 2004) and recently been
subject to critique by Post Keynesians (Arestis and Sawyer 2002, Kreisler and Lavoie 2004).
12
the people searching for jobs, in the NK version the unemployment benefits increase the
bargaining power of the workers who have a job and pushes up their wage demands.
Therefore involuntary unemployment will arise because of wages being "too high".
We are now in a position to discuss the properties of the New Keynesian NAIRU model. In
the short run, effective demand determines actual unemployment and as a consequence
unanticipated inflation. To be more precise: demand determines the deviation of actual
unemployment from equilibrium unemployment. Unemployment then is a function of fiscal
and monetary policy (y0) and changes in the price level (10) result. In the short run, the
system therefore has Keynesian features, but only because of the difference between expected
and actual prices.
Since their expectations have been frustrated in the short run, people will alter their behavior
and adjust expectations to the higher price level. For equilibrium in the long run, expectations
have to be fulfilled (?p=0), and income claims are thus equilibrated through the rate of
unemployment. There will be only one level of unemployment that renders income claims of
workers (w0) and capitalists (0) consistent. Any attempt by fiscal or monetary policy to move
unemployment away from this equilibrium level is doomed. In the long run the NAIRU
depends on wage push factors and the mark up, but not autonomous demand. In the long run
the model thus has neoclassical features, but a non-clearing labour market.
This is summarized in Figure 2. Compared with Figure 1 there are two demand curves. uIS
(based on 13.NK), which is the level of employment for a given interest rate and uIS-CB
(based
on 16) incorporates the CB reaction function and has a negative slope. In case u is below uN
there will be an increase in inflation. In the next period the PC will thus shift upwards. With a
stable reaction function the system is stable and the NIARU serves as an attractor for actual
unemployment.
Insert FIGURE 2 about here
From the NK NAIRU model to the NAIRU story
The New Keynesian interpretation of the NAIRU therefore replicates on important feature of
the Neoclassical Synthesis: the short run (Keynesian) ­ long run (Classical) dichotomy.
13
Finally, we turn to the policy conclusions and see how the NK model turns into the NAIRU
story. The standard NAIRU story of European unemployment is that wage push factors (w0),
mostly welfare state related, caused unemployment. Wage inflexibility is due to labor market
rigidities that empowered insiders has caused a rise in the NAIRU (Krugman 1994, Siebert
1997). Among the most frequently cited causes for unemployment are long and durable
unemployment benefits, job protection measures, high social security contributions (or more
generally: the tax wedge), and strong unions. This explanation, i.e. a change in w0 within the
NAIRU model, leads to an increase in the rate of unemployment, with the mark up being
constant.5
The policy recommendations of this explanation are straightforward: since rigid
labor markets and overgenerous welfare states have caused the problem, labor markets have
to be deregulated and welfare states curbed. The OECD does therefore recommend in a series
of publications ("Implementing the OECD Jobs Strategy") the easing of employment
protection, reducing the level and duration of unemployment benefits, and decentralizing
wage bargaining.
Note that what we call the NAIRU story is really an interpretation of the NK NAIRU model.
The NAIRU story does not follow automatically from the NK interpretation of the NAIRU,
since the former involves an empirical claim: that labor market institutions have in fact
changed in the alleged direction and strong enough so as to raise the NAIRU substantially.
Neither of this claims is supported unanimously by the empirical literature (Madsen 1998,
Ball 1999, Stockhammer 2004a, various contributions in Howell 2005)
Unemployment hysteresis
Many NK models take into account unemployment persistence. This is a delicate task since
unemployment hysteresis has the potential to undermine key policy conclusions of the
NAIRU story. If today's unemployment depends on past unemployment then the
effectiveness of economic policy in fighting unemployment increases. The NAIRU itself may
become an endogenous variable and follow where actual unemployment takes it (Blanchard
5
This, however, is at odds with the stylized facts of European unemployment. Over the long run we do
observe a rise in the rate of unemployment and in the profit share (Blanchard 1997, Stockhammer 2004c Chap.
1).
14
and Summers 1988), in our notation 0> . Indeed, within New Keynesians there is
disagreement on the question how fundamental the effect of hysteresis is. Whereas Layard,
Nickell and Jackman (1991) regard it as a minor modification to the model, Ball (1999)
argues that differences in monetary policy explain most of the differences in unemployment
rates across countries.
In the NK version unemployment persistence is usually (Layard, Nickell and Jackman (1991)
modeled in the following way. Wage demand depend on a weighted average of current and
past unemployment rather than on current unemployment alone. Thus:
( ) ( )1101 ---=- tt
W
huuww (1')
where 0 < h < 1 is a measure for unemployment persistence. The mechanism through which
unemployment persistence becomes effective is that current and past unemployment affect
wage bargaining differently. The justifications for this differ. Frequently cited causes are
insider bargaining (insiders care more about the employed than about the unemployed) and
deskilling (the unemployed loose skills while unemployed and thus cannot compete with the
employed).
Only in the extreme case of full hysteresis (h=1), will demand determine the change in
unemployment.
[ ] 12200 /)(1 wpwwu +--+= 
Inflation can be stable at any point with stable unemployment. In other words the NAIRU will
be dragged along with actual unemployment and ceases to play an independent role.
However the above requires that long term unemployed exercise no downward pressure on
wages whatsoever, an assumption which few economists are willing to make. Thus usually
unemployment partial persistence (0 < h < 1) thought to be more realistic. In the short run
unemployment will then not only depend on the NAIRU and unexpected inflation, but also on
past unemployment.
112122 //)( whuwwpwuu tNt -++-= 
15
But in the long run, here 0=p and 1-= tt uu , unemployment will depend only on the
exogenous factors that determine the NAIRU. The expression for the NAIRU then changes
somewhat:
( ) ( ) ( )hwwwhwwwuu N
LR
2100211 /1/ --+=-= 
Thus unemployment persistence in the case of less than full hysteresis is merely a case of low
wage flexibility (with respect to unemployment) and will increase unemployment in the long
run. However, it does not affect the long run properties of the NK NAIRU model. However,
for NKs with a genuine interest in short run development it can provide a reason to argue for
government demand management.
Post Keynesian NAIRU
Post Keynesian reactions to the NAIRU
The NK-NAIRU theory lends itself to policy recommendations that are in line with standard
neoclassical prescriptions. Labour market reforms, not demand policy, is what is needed to
combat unemployment. The NAIRU story, correspondingly, argues that it has been wrong-
headed labour market reforms that led to labour market inflexibility and thus caused the rise
in European unemployment. Of course there have been Post Keynesian reactions to this
explanation, but these reactions have been far less unified than the NK-NAIRU approach and
range from outright rejection of the NAIRU to extending the NAIRU model.
One of the main causes for the diversity in Post Keynesian reactions to the NAIRU model is
that some of its arguments, in particular the role of distributional conflict in explaining
inflation are also part of the Post Keynesian repertoire. Thus in the following a variety of
Keynesian approaches is presented.
Davidson (1998) offers a Post Keynesian critique of the NAIRU approach. Emphasizing the
pivotal role of uncertainty in a monetary production economy he insists that no labour
demand curve, nor its present incarnation in the form of the price setting curve, can be drawn
without an assumption about effective demand, because the notion of the marginal product of
labour or the marginal revenue product of labour that underlies the price setting curve does
16
not exist prior to the level of effective demand. The labour demand curve therefore depends
on the level of effective demand, which in turn is crucially determined by government
expenditure and investment. Wage decreases can therefore not bring about an increase in
employment unless they increase effective demand. Davidson's contribution constitutes a
clear Keynesian rebuttal of the NAIRU story, however it remains unsatisfactory because he
seems to miss the difference between a standard labour supply curve and the wage setting
curve.
Pollin (1998) can be regarded as the complement to Davidson in that he discusses the wage
setting curve, but remains silent on the price setting curve. Pollin draws attention to the
parallels in the NAIRU bargaining model and a Marx-Kalecki theory of income distribution
and the reserve army: "In my view, Marx and Kalecki also share a common conclusion with
natural rate proponents, in that they would all agree that positive unemployment rates are the
outgrowth of class struggle over distribution of income and political power." And he goes on:
"Of course, Friedman and the New Classicals reach this conclusion via analytic and political
perspectives that are diametrically opposite to those of Marx and Kalecki. To put it in a
nutshell, mass unemployment results in the Friedmanite/New Classical view when workers
demand more than they deserve, while for Marx and Kalecki, capitalists use the weapon of
unemployment to prevent workers from getting their just due." (Pollin 1998, 5f)
Pollin hardly addresses the issue of effective demand or its negation. Davidson and Polling
cover the extreme poles of the reactions of Post Keynesians to the NAIRU theory: harsh
criticism of its neglect of demand and approval of its emphasis on distributional conflict.
Similar arguments regarding the role of unemployment and distributional conflict in the
determination of inflation had been made much earlier by Post Keynesians under the name of
conflict inflation.
Conflict inflation6
Davidson probably underestimates the innovative potential of the NAIRU theory and how far
it has moved from the classical model that Keynes had criticized. As a theory of inflation the
NAIRU model resembles the conflict inflation theory of Post Keynesian origin. This theory,
6
See Rowthorn (1977), Lavoie (1992), and Palley (1996) as examples.
17
was formally developed in the 1970s and 80s, but was already contained in the early writings
of J. Robinson (1937) and reflects Post Keynesians long-standing conviction that inflation is
the outcome of distributional conflict (and not excessive growth in the money supply) and
thus has to be combated through incomes policies (Rochon 1999, King 2002).
Conflict inflation theory takes as its point of departure income claims of labour and capital,
though the model can obviously be extended to include the state and a foreign sector. If the
income claims of labour and capital exceed national income, the income claims are
inconsistent and inflation will result such as to reconcile income claims nominally.
The income claims depend on the respective power position, which will depend on various
exogenous factors (strength and militancy of labour unions; market power of firms) and
demand. For workers a lower level of effective demand results in higher unemployment, for
firms it implies lower capacity utilization. Thus a lower level of demand weakens the
bargaining position of either side and thus will lead to lower inflation. Inflation in this theory
is thus not a monetary phenomenon in the sense of the quantity theory of money, but a real
phenomenon, resulting from the distributional conflict between capital and labour.
Such a model will exhibit a rate of unemployment at which inflation is constant, because at
this rate of unemployment workers are weakened sufficiently to accept capitalists' income
claims. Thus the model exhibits a NAIRU. However, the similarities between the conflict
inflation model and the NAIRU theory are rarely discussed explicitly. Most proponents of the
conflict inflation model (e.g. M. Lavoie) regard it as a theory of inflation rather than
unemployment. 7
A Post Keynesian NAIRU model
Post Keynesians usually embrace the inflation part of the NAIRU model, that is conflict
inflation, but do not share the labor market part of the New Keynesian model. The theory of
demand and consequently the determinants of the NAIRU differ. With an appropriate
7
Lavoie (2002) and Casetti (2002) propose Kaleckian growth models with conflict inflation, where a
higher price level has no effects on demand. In such a model a NAIRU will exists, though it is not mentioned
explicitly by either author, but it affects only inflation, but no real variables.
18
specification of the demand side and endogeneity of the NIARU itself, equations (1)-(9)
would be acceptable.
First, the effect of inflation on demand is usually (at least for medium levels of inflation)
thought of as positive (or nil) rather than negative. In particular Post Keynesians argue that
deflation will have a contractionary rather than an expansionary effect. This is sometimes
called the Fisher effect and is due to the real value of debt and debt services increasing.8
Second, income distribution may affect demand, with the standard Kaleckian assumption (for
a closed economy) being that and increase in the wage share will have a positive effect on
output because of the savings differential between capital income and labor income.
Thus the demand closure in the Post Keynesian NAIRU model will be:
( )pDyyyyIS
-++= 430  with 0,0 32 <> yy without CB 13.PK
If the Central Bank follows a Taylor Rule the extended IS-curve becomes:
( ) ( )pDypiyyyy CBIS
-+--+=-
4230 
Keynesians have long emphasized the role of effective demand in determining the level of
output and employment. The labor market is usually thought of as adjusting passively to the
level of effective demand, which is why Sawyer (1996) speaks of the labor sector rather then
the labor market in Post Keynesian economics. As a consequence Post Keynesians argue that
the NAIRU itself is endogenous.
One reasonwhy, the NAIRU should be endogenous was already discussed above: hysteresis
in wage formation. Employment, being dragged along with demand, will respond slowly,
because insiders may not consider the long-term unemployed as competitors. However, the
PK case for the endogeneity of the NAIRU is much broader. Indeed, there are several
arguments. First, PKs reject the neoclassical theory of income distribution based on
8
In fact at moderate levels of inflation, roughly below 20%, inflation is positively correlated with growth (Bruno
and Easterly 1998).
19
technology and preferences. Rather wage and profit aspirations are based on conventional
behavior. Therefore, wage claims themselves will depend on the past experience.9
A simple way to formalize this argument is the following: Assume that autonomous wage
laims increase if the actual wage share is higher than wage claims. In other words, workers
get used to their higher income share. The same conventionalist argument would hold for
profit claims.10
( ) ( )[ ]W
w  ---= 11^0
[ ]R
 -=0
^
Since the NAIRU is determined by autonomous income claims, it would also become
endogenous:
Since ( ) ( ) 011 >---
W
 and 0>- R
 if Nuu > :
( )NN uuu -= ^ if Nuu > , since ( ) 100 /1 wwuN -+=  and thus 00
^^^ wuN +=
The NAIRU would thus follow the path of actual unemployment.
Second, the level of employment will depend on the capital stock (in combination with
imperfect substitutions between capital and labor), an issue that has been established
empirically by several studies (Sarantis 1993, Arestis and Biefang-Frisancho Maricsal 1998,
Stockhammer 2004a).11
Thus the NAIRU in Post Keynesian model will depend, next to labor
market institutions, depend on the capital stock and past unemployment
pwyuwwpKy --+-= 21020 )(),(1  and )( t
t
yfK =
Third, it has been argued that profit claims would be affected by the interest rate (Hein 2005).
An increase in the interest rate would thus affect not only actual unemployment, but also the
NAIRU.
)(0 pih -= thus 1/ whiuN =
9
This formulation is similar in spirit, if not in detail, to that of Setterfield (2005). In Setterfield's model wage
aspirations refer to the growth of wages rather than the wage share. Thus if productivity growth increases, wages
may lag behind and still be in line with aspirations.
10
The analogy will only hold in a closed economy. In an open economy with capital mobility, profit claims will
not readily adjust to past experiences at home but strongly depend on profitability abroad. Thus we would expect
that in the real world, alpha be much greater than beta.
11
This has the important implication that if there is a significant change in the capital stock (that is an investment
boom or slump), the relation between unemployment and capacity utilization will shift (Rowthorn 1995).
20
There are several other arguments that have been put forward by Post Keynesians, but in the
framework presented here, they are not crucial, though they would reinforce the argument
presented her.12
The key point is as Lavoie (2005) points out that the natural rate of growth is
endogenous.
To simplify the presentation the effects of inflation and income distribution will be discussed
separately. Figure 3 shows the interaction of the PC and demand assuming that 0= y .
Without Central Bank intervention the demand curve will have a positive slope. If u is below
uN, there will be accelerating inflation. In the next period the PC will shift upwards and the
resulting u2 will be further away from uN than u1. Thus without Central Bank intervention the
system is unstable (at moderate inflation rates). If the Central Bank's reaction function inverts
the slope of the demand function, the system will be stable. In either case because of 9.PK the
NAIRU will follow the actual unemployment.
Insert Fig 3 about here
Figure 4a and 4b present the interaction of the distribution curve and demand assuming that
0= py . Depending on the wage elasticity the system may be stable (Fig. 4a) or unstable
(Fig. 4b). Note that a higher wage elasticity gives rise to a higher likelihood of instability. In
either case the NAIRU will follow actual unemployment (Stockhammer 2004b).
Insert Fig 4a and 4b here
To wrap up, most Post Keynesians would probably accept that there is a NAIRU at any point
in time, but it is neither exogenous nor is it a strong attractor for actual unemployment.
Inflation does not have a monetary cause, but a real cause: distributional conflicts. This is
why many Post Keynesians would be sympathetic with the inflation aspect of the NAIRU
story. However, there is no automatism that would ensure that actual unemployment returns
to the NAIRU. Monetary policy, if following a Taylor rule, however could create a policy
12
Kriesler and Lavoie (2004) argue that the relation between capacity utilization and inflation is non-linear. For
a broad range of "normal" capacity utilization variations in capacity utilization will have no inflationary effect.
21
mechanism that stabilizes actual unemployment as well as the NAIRU. If so, however, the
NAIRU is a policy induced phenomenon rather than a purely economic one.
The inverse real balance effect and a wage-led demand regime do have an important
consequence: the equilibrium will become unstable. If wages increase growth, growth
increases employment and higher employment improves the bargaining position of labor, then
a deviation from equilibrium will be self-sustaining. In the real world, however, such an effect
would be dampened because of two factors that are conveniently ignored in the above
discussion. First the foreign trade makes actual national economies (but not the world
economy as a whole) profit-led rather than wage-led (Bowles and Boyer 1995). Second,
automatic stabilizers (progressive income taxes, unemployment benefits etc) will tend to push
the economy towards equilibrium.
A Marxist quasi-NAIRU
While there is a rich and ongoing debate among Marxists on the theory of money, surprisingly
few Marxian contributions exist on the theory of inflation.13
The basic tension in Marxian
monetary theory is the one between commodity money and credit money(nicely exposed in
Foley 1983). Whereas in Volume I of Capital presents a theory in which money has to be a
commodity itself ("Gold confronts other commodities as money only because it confronted
them previously as a commodity" Marx 1976, 162), he and more so Hilferding emphasized
that, at least temporarily, not only fiat money by the state but also endogenously created
means of payment such as bills of exchange can play this role. Moreover, in the later chapters
of Volume III of Capital Marx highlights the role of credit in the business cycle. Today there
is a lively debate on whether money in Marxian theory is commodity money or credit money
(Itoh and Lapavitsas 1999, Germer 2005, Bellofiore 2005). Unfortunately for our purpose the
reference point for this debate is the Marxian theory of value and not the explanation of
inflation, though these theories will also have implication for inflation theory.
In particular French Marxists have elaborated inflation as a symptom related to the use of
credit money in the postwar era and the stagflation of the 1970s as symptom of the crisis of
the Fordist mode of regulation (Aglietta 1979, Lipietz1985). Credit in this view is a pre-
13
Out of some eight consulted introductions to Marxian economics only Harvey (1982) had a section on
inflation.
22
validation of the value of produced commodities that can smooth out demand variations and
enhance accumulation. If, however, the underlying class relations, demand structures, and
productivity developments are contradictory, credit money will only post-pone the day of
crisis and adjustment. Lipietz' enchanted world of inflationary world will eventually hit the
hard ground of real constraints.
If money in the last instance is commodity money, then inflation is due to an excessive
growth of the money supply.14
The "true" (that is with respect to the realization of values)
money supply is given more or less exogenously and credit money only creates temporary
deviations from the balance between money and (produced) values. Consequently Itoh and
Lapavitsas criticize Post Keynesians (in particular B. Moore) for not realizing that
"Endogenously created credit money can be profoundly destabilising in terms of both prices
and real accumulation." (Itoh and Lapavitsas 1999, 244). Inflation in this view is, or at least
can be, caused by an excessive growth of the money supply, which is itself regarded as a
symptom of overaccumulation (Harvey 1982).
So far there is indeed little to recommend the NAIRU theory as a Marxian theory of inflation.
The major exception is Rowthorn (1979) who argues that from a class conflict point of view
the outcome of inconsistent income claims of workers, capitalists, the state and the foreign
sector can either be resolved in real terms by a recession and unemployment or in nominal
terms by unexpected inflation. The model he proposes is basically equivalent to what was
discussed as conflict inflation under the heading of Post Keynesian theory. Indeed, few
Marxists have made reference to Rowthorn (1979),15
whereas Post Keynesians have
integrated him, even though Rowthorn developed his arguments in a Marxist terminology.
Things look different once we turn to the Marxian theory of unemployment. While few
Marxists have emphasized the similarity between the Marxian reserve army of the
unemployed and the NAIRU, these two concepts are indeed similar. In particular if one thinks
of Goodwin's (1967) formalization of the Marxian argument. While not explicitly
highlighting parallels between NAIRU and Goodwin Shakih notes a similar property: in
Goodwin's model "greater labor strength would (...) serve to increase the long-run
14
Proponents of commodity money do not deny that money as medium exchange can be credit money, but insist
that money as a measure of value has to be commodity money.
15
Remarkably none of the contributions in Moseley (2005) refer to Rowthorn (1979).
23
equilibrium rate of unemployment." (Shaikh 2004, 140). This has been noticed by Pollin
"Marx and Kalecki (...) share a common conclusion with natural rate proponents, in that they
would all agree that positive unemployment rates are the outgrowth of class struggle over
distribution of income and political power" (Pollin 1998, 5).
Obviously the terminology used in these theories differs. Hardly any New Keynesian would
write about class struggle, but use the term wage bargaining, which as Marxists would readily
admit, is one important aspect of class struggle in modern capitalism. 16
The biggest
difference between Marxian models of the reserve army and NAIRU models is first that the
former usually employ a real wage Phillips curve (or wage curve), whereas NAIRU models
are centered around a nominal wage/inflation Phillips curve; second most Marxian in the
Goodwin tradition focus on the disequilibrium dynamics rather than on comparative statics.
Substituting "factors influencing the relative strength of workers" for "labor market
institutions", most of the variables used by New Keynesians to determine the NAIRU would
be acceptable (except maybe the tax wedge). Higher or longer unemployment benefits, the
membership of trade unions, minimum wages certainly qualify. And, most of all of course,
unemployment as worker discipline device. Some genuine class struggle variables would have
to be added to the determination of workers' wage aspiration, such as labor militancy, though
these are rather difficult to measure empirically (strike activity is sometimes used), but New
Keynesians would probably not object to including these.
Typically Marxian economic models are profit-driven, because investment is driven by
profits.17
After our incocnlusive discussion of the Marxian theory of inflaqtion we assume that
inflation itself has no effect on output. Thus the Marxian demand closure is
30 yyy += with 0,0 32 >= yy 8.Mx
16
Indeed Social Structure of Accumulation theorists have highlighted that de-politicized wage negotiations form
a crucial part of the Fordist labor accord (Bowles, Gordon and Weisskopf 1986).
17
The profit squeeze theory (of which the Goodwin model is part) is fo course not the only Marxist crisis theory.
Since the seminal contributions of Shaikh (1978) and Weisskopf (1979) Marxian crisis thoeries are usually
grouped under the heading of unederconsumption/realization problems, profit squeeze and organic composition
of capital theories. The latter with its focus on technical change is well beyond the scope of this paper.
Underconsumptionist theories would for the purpose of this paper be equivalent to the wage-led regimes
discussed in the PK section. Thus, in the main part of this section only profit squeeze models are discussed as
Marxist.
24
In the Marxist thoery on would also expect an endogenous NAIRU since Marx highlights that
"In contrast (...) with the case of other commodities, the determination of the value of labour-
power contains a historical and moral element" (Marx 1976, 275). As in the Post Keynsian
case workers will form their wage claims based on their past wage levels. Again the Marxian
quasi-NAIRU is thus endogenous. However, this turns out to be of less significance than in
the PK case.
Figure 5 present the Marxian quasi-NAIRU, where uIS
is based on 8.Mx. In the short run the
mechanics of the Marxist model are thus surprisingly close to those of the New Keynesian
one, though for different reasons. The adjustment mechanism of the goods market differs. In
the case of New Keynesians, it is a real balance effect, in the case of Marxists it is profit-
driven investment expenditures that adjusts output should actual unemployment deviate from
the NAIRU. Unlike the PK wage-led growth regime the Marxist profit-led regime is stable.
Therefore the endogeneity of the NAIRU itself is less important.
insert FIGURE 5 about here
What are the policy conclusions of the Marxist interpretation of the NAIRU? While the
NAIRU story is aimed at making workers accept lower wages, the Marxian story would tell
them that wage increases, which would be justified since workers produce the output after all,
will contradict the logic of capitalist accumulation. Thus to actually consume the fruits of
their labor, workers ought to do away with capitalism.
While Marxists would have little disagreement with the mechanisms involved in the NAIRU
story, they do contradict its empirical claims. The reason for the rise of unemployment is not
overgenerous welfare state, but a slowdown in accumulation(Duménil and Levy 1999). Thus
the empirical claim that unemployment has been pushed up by labor market institutions is
disputed. For Marxists, the 1980s are a period of defeat of labor, thus less rather than more
unemployment would be needed to stabilize income distribution. Rather changes in the
structure of accumulation have caused a slowdown in growth and thus unemployment. The
exact definition of and the reasons for these changes are subject to debate. Duménil and Levy
(2001) argue that neoliberalism is characterized by profits being appropriated as financial
profits rather than industrial profits, which has a detrimental effect on investment. This would
correspond to an inward shift of the IS-curve in Figure 5, which would give a new
25
equilibrium with higher unemployment and higher profits. This scenario fits the stylized facts
for European unemployments since 1980 (Stockhammer 2004c). Thus while the theoretical
model of the Marxists is closer to the New Keynesians, their assessment of the causes of the
rise of unemployment are very similar to those diagnosed by Post Keynesians.
Conclusion
The task of this paper was to evaluate whether the NAIRU theory is a Monetarist, New
Keynesian, Post Keynesian or Marxist theory. We distinguished carefully between the
NAIRU theory, which derives an (expectations-augemented) Phillips Curve from income
claim functions by labor and capital, and the NAIRU story which claims that actual
unemployment is determined by NAIRU (rather than vice versa) and that actual
unemployment in Europe has been rising because of adverse changes in labor market
institutions. The paper seeked to demonstrate that different demand closures as well as
different NAIRU closures give rise to New Keynesian, Post Keynesian and Marxist
interpretations of the NAIRU.
The NAIRU theory is a New Keynesian theory, because it does not involve market clearing
and the wage setting function is understood as a bargaining outcome. The resulting
unemployment at the NAIRU is involuntary, contrary to the Monetarist natural rate. Thus the
NAIRU is not a Monetarist theoryproper, even though the policy recommendations based on
the NAIRU story coincide with standard neoclassical policies. New Keynesians argue that
changes in inflation (caused by deviation of actual unemployment from the NAIRU) will
realign output such that actual unemployment will gravitate towards the NAIRU. The NAIRU
story is a particular interpretation of this New Keynesian interpretation. However, the NAIRU
story involves empirical claims (exogenous NAIRU) that not all New Keynesians share and
that are empirically contested.
Post Keynesian reactions to the NAIRU differ, ranging from outright rejection to revisions of
the NAIRU model. In fact the NAIRU model is consistent with the Post Keynesian theory of
inflation in that inflation is caused by a real distributional conflict rather than by growth of the
money supply. The Post Keynesian demand closure has a Fisher effect and a wage-led
demand regime. Thus the equilibrium will be unstable and the NAIRU will be a repellant
rather than an attractor (in a closed economy), unless the government or central banks
26
stabilize. In addition the NAIRU is regarded as endogenous. Thus the policy
recommendations are traditional Keynesian demands for active fiscal and monetary policy.
Marxists usually are more concerned with real rather than with nominal wages, however the
NAIRU model is also consistent with a Marxist interpretation. Of course the terminology
differs from New Keynesians. Marxists would speak of factors influencing the relative power
of workers in class struggle rather than, like New Keynesians, about labor market institutions
influencing workers bargaining power. However, the actual empirical measures used come
down to the same effect. There is however a difference on the goods market: rather than a real
balance effect or a central bank reaction function profit-driven investment provides the goods
market adjustment mechanism.
Despite these analytic similarities, Marxists reject the NAIRU story, on the grounds that
workers' strength has declined rather than increased in the 1980s and 1990s. Their
explanation of the rise of unemployment in Europe is closer to the Post Keynesian
interpretation, in that the slowdown in private accumulation and government expenditures is
blamed.
Where does the conceptual clarification attempted in this paper leave the researcher working
on unemployment? First, a simple model nesting competing economic theories can be built.
In this model the various theories discussed can be regarded as special cases which
correspond to particular restriction in the model. Second, these restrictions can be tested
empirically to assess the plausibility of the various closures imposed by the theories
discussed. In particular this would require empirical answers to the following questions:
ˇ Is actual unemployment driven by changes in labor market institutions?
ˇ How large is the hysteresis-effect in unemployment and wages?
ˇ Does demand respond positive or negative to changes in inflation?
ˇ Is demand wage-led or profit-led?
Of course, many of the relevant tests have already been carried out, though not exactly in the
framework outlined above. Evaluating these tests would or performing them would be subject
of a follow-up paper.
27
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Table 1. A NAIRU reference model
wage claims ( ) )(1 10 yuww
W
-=- (1)
profit claims: 0 =R (2)
realized wage share ( ) U
pwyuww 210 )(1 --=- (3)
realized profit share U
p20  -= (4)
national income
(standardized to 1)
( ) U
pwyuww 22100 )(1 +--+=  (5)
adaptive expectations 1-= t
E
t pp , thus ppU
= (6)
unemployment ynu -= (7)
demand 320 ypyyy ++= (8)
NAIRU ( )NN uuu -= ^ , where
( ) 100 /1 wwuN -+= 
(9)
where , u, p and z are the profit share, the rate of unemployment, the rate of inflation and
capacity utilization. w0 can be interpreted as target wage share, 0 as target profit share
superscript U stands for unexpected
31
Fig. 1 Monetarism
UNRU
uIS
1
PC1
PC2
1-u
p
32
Fig 2 New Keynesian NAIRU
UNAIRU
uIS-CB
PC1
PC2
1-u
p
uIS
(i1)
33
Fig. 3 Post Keynesian NAIRU
UN,1
PC1
PC2
1-u
uIS-CB
p uIS
1
UN,2
34
Fig 4a. A stable PK NAIRU with distribution-led demand
UNAIRU
uIS
(p)
p(u)
p
35
Fig 4b. An unstable PK NAIRU with distribution-led demand
UNAIRU
uIS
(p)
p(u)
p
36
Fig 5. A Marxian quasi-NAIRU
Uq-N
uIS
(p)
p(u)
p
1-u