Wage Uncertainty and Competitive Equilibrium in Labour Markets
AbstractThis paper analyzes the effect of wage-rate uncertainty on long-run competitive equilibrium for a labor market made up of heterogeneous workers. The authors show that, if workers are risk-averse, an increase in wage rate uncertainty always lowers aggregate hours of work and increases the expected wage. They also characterize precisely the class of distribution changes that decrease (or increase) aggregate hours of work and use this result to construct a Pareto-improving negative income tax scheme. Finally, the authors demonstrate that an increase in risk aversion has the same qualitative effect on aggregate hours of work and the expected wage as an increase in wage risk. Copyright 1994 by The London School of Economics and Political Science.
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 61 (1994)
Issue (Month): 242 (May)
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- Hennessy, David A., 1998.
"Industry Equilibrium Under Price Distribution and Cost Shifts,"
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- Lyubov A. Kurkalova & Helen H. Jensen, 2000. "Relative Growth of Subsidiary Farming in Post-Soviet Economies: A Labor Supply Story," Center for Agricultural and Rural Development (CARD) Publications 00-wp249, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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