Upward WS Curve Shift as a Source of Cost-Push Inflation
An upward shift in the wage-setting (WS) curve represents a cost-push supply shock. This shift occurs when workers' bargaining power increases, leading them to secure higher real wages at any given level of employment. Factors that can cause such a shift include increased union strength or more generous unemployment benefits. The immediate effect is the creation of a positive bargaining gap at the current employment level, which initiates inflationary pressure as firms pass on the higher wage costs to consumers through increased prices.
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Economics
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Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
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Figure 4.21: Illustration of Cost-Push Inflation from an Upward WS Curve Shift
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