As long as productivity does not affect the bargaining process between workers and firms, technological progress will not affect the natural rate of unemployment.
Ans - False
But, I think this should be true because in case the price setting and wage setting equations change by the same amount, the natural rate should remain same... so in case bargaining process of wage setting does not interfere with this system, u_n should be same... or does tech progress always change the natural rate of unemployment.. someone please clarify...
Yes price setting moves up.. and so long as productivity of labour doesn't change due to the tech. change, wage setting remains same and bargaining power remains same.. so natural rate reduces and we have moved up on the same wage setting curve and real wages fall...
so indeed the answer is false.
I guess the only time natural rate stays same is when the tech progress cause mpl to rise and hence wage setting also moves up by the same extent as price setting.
"if u r assuming that there is a positive markup" .... Don't we always have a positive markup.. how does this means giving up competitive setup..??? I mean we are not taking a positive markup over marginal cost. we are just taking a positive markup over wages.
I am really confused right now...!!!!
And, while calculating real wage, u just took +ve markup, right?
And, why MPL is not equal to real wage?? if it's more than real wage, why don't we employ more labour??
See the book assumes that Y=N. so marginal cost is equal to nominal wage. the markup is over marginal cost, which happens to be the wage. when labor productivity increases, Y becomes AN where A>1. marginal cost becomes W/A. and u will hv P=(1+mu)(W/A). W/P=A/(1+mu). So yes the price setting relation does change :P :P