Shifts to LRPC

The LRPC is shifted by real factors in the economy that make the labour force more flexible. To shift the LRPC left (desirable), the government would have to implement labour market reforms that would allow for greater labour market flexibility, allowing for lower levels of unemployment no matter the level of inflationary expectations. This may include:

Improved skills levels
Decreased union power
Improved mobility of labour
Better job information
Reduction of employment licensing regulations

It could be argued that the rise of the ‘gig economy’ of informal work would also allow for grater labour market flexibility.

Shifting the LRPC right (undesirable) would be due to policies that decrease labour market flexibility, such as:

Increased union power
Increased licensing regulations.
Decreased labour mobility
Increased regulations in hiring/firing people.

Phillips Curve Review Questions

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