A Conflict Model of Stagflation

Abstract

This paper introduces a Lotka-Volterra-Goodwin model to study inflation and unemployment in the context of the distributional conflict between labor and capital. It was shown that the 1960-81 period was marked by a positively-sloped, long-run Phillips curve which first rose only slightly but became steeper later on. The stagflation phenomenon was attributed to the dominance of the wage-push over the profit-push. It was found that during 1970s workers' expectations and demands for higher wages and living standards greatly exceeded the paying capacity of the economy which was already severely limited by the supply shocks.