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The Optimal Timing of Unemployment in a Recession

Abstract

THE HIGH unemployment in 1975 and the possibility that it will persist for several years raise in very stark terms the issues of the inflation-unemployment tradeoff. One aspect of this question, which has been debated extensively in the past decade, regards the social costs of inflation and unemployment: whethermacroeconomic policymakers should strive for lower inflation rates or lower unemployment rates, recognizing that they cannot achieve both at the same time and may not be able to achieve a satisfactory level of either. A neglected aspect, which nevertheless deserves attention, regards the "optimal" time path of unemployment in a recession -optimal, that is, from the standpoint of reducing inflation per manhour of unemployment experienced in the recession. Since the one social value of a recession is its ability to stop inflation, some time paths for unemployment must achieve this objective more efficiently than others. This paper examines the timing issue.

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