According to Milton Friedman, NAIRU (Non Accelerating Inflation Rate of Unemployment) shows the equilibrium unemployment in Keynesian thinking in macroeconomics. To demonstrate this, the real wages and the position of workers are employed in low unemployment, assuming labor productivity is constant.
When low-unemployment workers demand higher employers' wages, they will reduce production and reduce labor demand. Unemployment is increasing. As a result, employees get less power and wage demands will be adjusted downwards. Real wages fall and inflation rises. This increases the demand of companies for labor and unemployment is shrinking again. This increases real wages and decreases inflation. As a result, unemployment will go to a certain percentage, with inflation remaining stable.
In practice, there is much criticism of NAIRU. In Scandinavia there is a highly regulated labor market, which has a positive effect on wages. According to NAIRU, the equilibrium unemployment should be higher in order to compensate for the effect of higher wages with equal inflation. Still, Scandinavia has a very low unemployment rate.
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