BPEA | 1978 No. 2

Tax-Based Incomes Policies

1978, No. 2

GIVEN the institutional features and ethical norms of modem labor markets and the income-maintenance programs of the welfare state, it appears that substantial macroeconomic slack is required to keep the rate of wage inflationa nd therefore the rate of price inflation from accelerating. Because of these deviations from a purely atomistic, competitive labor market, the unemployment rate required to prevent a rise in wage inflation is economically inefficient. The central policy problem, therefore, is to reduce this nonaccelerating-inflation rate of unemployment (NAIRU) of the economy