· The 1950s had low unemployment and low inflation, and high real growth.
· The 1960s had the threat of unemployment, and governments accommodating inflation in order to actually prevent it.
· The 1970s nevertheless had mass unemployment bursting into the open, and governments accommodating high and accelerating inflation to battle it. Growth is volatile.
· The 1980s had governments come down hard on inflation, while they accept high levels of unemployment and stagnating growth as the price for stability.
· The 1990s-till-now: There are different reactions on both sides of the Atlantic. Europe appears reluctant to dress down the welfare state, accepts high minimum wages and more unemployment that is partly hidden in Welfare State programmes. The USA appears willing to accept more poverty. (This difference in regional reactions started already earlier, but is clearest in this period.)
One sees a certain “trade-off” between unemployment and inflation. Figure 2 reviews the official data for the United States and Figure 3 for the Netherlands for 1950-2001. [36] For both countries, the official values for the 1950s and 2000s are in the same lower left and favourable region, but they have been far outside of it during the years in-between. [37] Since the official statistics in the 2000s have returned to the favourable lower left region, the natural question to ask is whether stagflation has been defeated. Figure 4 reviews the situation in the Netherlands, where the official values have been extended with those on the labour force ‘not working’. [38] One can suspect that Welfare State programmes can hide unemployment.
In macro-economics, the relation between unemployment and inflation is expressed in the Phillipscurve. Next to the standard (wage-) Phillipscurve there is the (price-) Phillipscurve that gives the relationship between unemployment and (consumer) prices (and that relies upon a dependence of prices on wage-costs). A more extensive (participation-) Phillipscurve links the development of wages and prices to unemployment or ‘not-working in general’. Understanding the relationships of the curves is subtle: it is not just the inclusion of the numbers, but rather the effect on the market. Notably, when ‘disability’ means a reduction of the workforce, the remaining workers face less competition and might raise their wage demands (see Figure 4).
[Figure ]2. The unemployment - inflation space 1950-2001, United States
