JOURNAL OF POLITICAL ECONOMY Similarly, I doubt that the existence of labor unions is remotely sufficient to explain the cost inflation phenomenon. whether the unions significantly exacerbate the problem-whether they increase that unemployment rate which is consistent with price stability-is, however, a difficult question The affirmative answer frequently starts from the theory, set forth by Dunlop(1950), that a union, to maximize its utility, seeks to "trade off the real wage rate against the unemployment of its members, raising the former (relative to productivity) until the gain from a further real wage increase is offset by the utility loss from the increase in unemployment expected to result from it. At an unemployment level below the unions the unions then push up wage rates faster than productivit But firms pass these higher costs on to consumers, so the real wage gains are frustrated, and as long as the government maintains the low unem- ployment level the rounds of inflation will continue I have trouble applying such a model to the American economy. Almost three-quarters of the civilian labor force do not belong to unions. This fact ts doubt on the quantitati ive importance of the model. And perhaps the fact goes much deeper. If the union members whom the unions make unemployed have no good prospect of future union employment, they will be inclined to seek employment elsewhere. If, at the other extreme, the union unemployment is shared in the form of a short workweek, this un- employment-while real enough to the extent that members do not moonlight"-does not add to the official unemployment rate as it is measured. Certainly the unions participate in the cost inflation process, and they may even increase a little the volume of unemployment consistent with price stability, But I should think that a union must offer its member ship a frequency of employment opportunities that is roughly comparable to that elsewhere in order to thrive and that appreciably reduced employ ment opportunities require a greater wage differential between union and other employment than is commonly observed. 4 Phillip: sful fitting of what to a scatter diagram of historical British data deprived the discussions of some of their institutional color, but epitomized the new concept of cost inflation---if by that term we mean(as i think most of the aforementioned writers intended) that kind of inflation which can be stopped only by a reduc- tion of the employment rate through lower aggregate demand and which structural changes, so that money wages will keep pace with prices until to increase, seems to me to be terribly implausible. In any IIs paper monopoly"argument 4 It is certainly likely, however, that an increase of union power, even if localized680 JOURNAL OF POLITICAL ECONOMY Similarly, I doubt that the existence of labor unions is remotely sufficient to explain the cost inflation phenomenon. Whether the unions significantly exacerbate the problem-whether they increase that unemployment rate which is consistent with price stability-is, however, a difficult question. The affirmative answer frequently starts from the theory, set forth by Dunlop (1950), that a union, to maximize its utility, seeks to "trade off" the real wage rate against the unemployment of its members, raising the former (relative to productivity) until the gain from a further real wage increase is offset by the utility loss from the increase in unemployment expected to result from it. At an unemployment level below the unions' optimum, the unions then push up wage rates faster than productivity. But firms pass these higher costs on to consumers, so the real wage gains are frustrated, and as long as the government maintains the low unem￾ployment level the rounds of inflation will continue. I have trouble applying such a model to the American economy. Almost three-quarters of the civilian labor force do not belong to unions. This fact casts doubt on the quantitative importance of the model. And perhaps the fact goes much deeper. If the union members whom the unions make unemployed have no good prospect of future union employment, they will be inclined to seek employment elsewhere. If, at the other extreme, the union unemployment is shared in the form of a short workweek, this un￾employment-while real enough to the extent that members do not "moonlightM-does not add to the official unemployment rate as it is measured. Certainly the unionsparticipate in the cost inflation process, and they may even increase a little the volume of unemployment consistent with price stability. But I should think that a union must offer its member￾ship a frequency of employment opportunities that is roughly comparable to that elsewhere in order to thrive and that appreciably reduced employ￾ment opportunities require a greater wage differential between union and other employment than is commonly observed.* Phillips' successful fitting of what we now call the Phillips curve (1958) to a scatter diagram of historical British data deprived the discussions of some of their institutional color, but epitomized the new concept of cost inflation-if by that term we mean (as I think most of the aforementioned writers intended) that kind of inflation which can be stopped only by a reduc￾tion of the employment rate through lower aggregate demand and which despite structural changes, so that money wages will keep pace with prices until unemployment is allowed to increase, seems to me to be terribly implausible. In any case, if this paper is right, cost inflation theory does not require any such "double monopoly" argument. It is certainly likely, however, that an increase of union power, even if localized, will raise the average money-wage level at any constant unemployment rate (see Hines, 1964)