In the Long Run We Are All Unemployed

38 Pages Posted: 13 Dec 2018

Date Written: September 1, 2016


In this paper a brief history of the Phillips curve is sketched. Empirical evidence from France, Germany, the United Kingdom and the United States during the latter half of the 20th century in support of a positive long-run relationship between price inflation and unemployment is presented. In order to reconcile the predominant theoretical view, which holds that inflation is neutral in the long run, with the observed data, two arguments are outlined, both of which build on unintended consequences of monetary expansion: 1) redistributional effects on incomes and wealth, and 2) business cycle fluctuations. The analysis hinges on further political interventions in response to these consequences, which tend to increase unemployment as they render labor markets less flexible. In this sense the relationship between price inflation and unemployment over the past 60 years can in part be interpreted as the outcome of an interventionist spiral.

Keywords: Inflation, Unemployment, Phillips Curve, Business Cycle, Distribution of Income and Wealth, Interventionist Spiral

JEL Classification: E24, E31, E32, E52

Suggested Citation

Israel, Karl-Friedrich, In the Long Run We Are All Unemployed (September 1, 2016). Quarterly Review of Economics and Finance, Vol. 64, 2017, Available at SSRN:

Karl-Friedrich Israel (Contact Author)

Université catholique de l'Ouest ( email )

3 Place André Leroy
Angers, 49000

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