Definition & Reality in the General Theory of Political Economy - Thomas Cool

We use the term “Equilibrium Rate of Unemployment” (ERU) for that rate of unemployment that causes wages to adjust to their equilibrating or market clearing level

° = (W° /W[-1] - 1). The CWIRU might be a special kind of ERU. The idea is that once inflation has been constant for a long while, you start expecting it. Table 8 contains an overview of the concepts.

Table 8: Concepts for wage inflation

		REH: white noise surprise = +*	Non-REH: other surprises
CWIRU = [-1]	uf = ERU[FE]	CWIRU = ERU[REH] = ERU[FE]	Maybe temporarily, but impossible in the long run
CWIRU = [-1]	Other	CWIRU = ERU[REH]	Maybe temporarily, but impossible in the long run
Non-CWIRU [-1]	uf = ERU[FE]	° = h[uf, u[-1] + … if expected …	° = h[uf, u[-1] + …
Non-CWIRU [-1]	Other	ERU[REH]	No equilibrium in any of these senses

Note: We use ° to indicate market clearing equilibrium, and * or E[.] for expectations
and expectational equilibrium. We use · when we allow for either.

We can recognise at least two equilibria:

· FE: full employment, when all labour resources are used except for friction unemployment uf = ERU[FE]. Normally