unit 6 lecture 2

Question 1

income policies

Answer 1

Income politics is the direct exercise of influence on prices
and wages to change employment level

Question 2

income policy based on productivity

Answer 2

• ∆B = a (yp - (∆W – π))
• shows, that employment will increase if the growth of
  real wages is smaller than the growth of productivity and vice versa
  → ∆(W/P) < yp

∆B = growth of employment
yp = productivity progress/growth (independent of employment
changes)
∆W = wage growth (nominal)
π = inflation rate

Question 3

income policy based on added value

Answer 3

∆B = b [∆q + (∆Y - ∆W)]

Question 4

Advantages of added value Income Policy

Answer 4

• Increase of GDP is easier to estimate than inflation rate
• Effect of changes in ∆W on GDP is low and only temporarily

Question 5

disadvantages of added value income policy

Answer 5

• Uncertainty of further changes in wage share (decrease of wage
  share cannot go on forever to improve employment)
• Estimation of ∆GDP for each country in EU difficult due to
  European countries being in European Monetary Union (Euro)
• Regional Wage restraints only have positive effect on employment, if the average wage increase is restraint