= 1 and thus NG/WT = g / W constant, and n constant, i.e. for the Bentham tax function n = 1 - r. This is only feasible if u is constant too. There is a more general class when
g / W / n is some constant, but u must be constant here too. In other cases the RIR is implicitly adjusted to make B / Net[W] constant. But nonconstancy of the RIR conflicts with above definition of the welfare state (that must have constant RIR).
Q.E.D.
28. Phillipscurve
This chapter deals with the confrontation of labour supply with labour demand, and the equilibrating dynamics. With high unemployment, wage growth may be reduced. With low unemployment there may be ample room for wage demands, and wage inflation can rise.
Chapter 25 already provided a background discussion on the Phillipscurve, and for example pointed to Graaflands c.s. derivation from a Nash maximising framework. In this chapter we take that possible development for granted, and concentrate on concepts: what variables are relevant for a Phillipscurve, and how do we characterise equilibrium.
It appears to be useful to first develop some concepts of dynamics.
Concepts
The Phillipscurve reflects the hypothesis that (wage) inflation is influenced by unemployment. Of course other factors are important too, such as (price, wage) expectations and forward shifting of taxes. Whatever other influences, the key notion of the Phillipscurve remains the influence of the employment situation. Wage adjustment now is considered to be the dependent variable while normally the price would be the independent variable. Wage adjustment will consist of a shift along a curve and a shift of the curve, and for both we still use the term ‘Phillipscurve’.