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The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis

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  • Martin Hellwig

Abstract

The paper studies the relation between real wage rates and employment in an intertemporal model in which expectations of subsequent real wage rates affect equilibrium capital investments and equilibrium interest rates in previous periods. Whether the wage-employment tradeoff is more favourable or less favourable in this model than in the static model with given capital depends on whether there is relatively more substitution in consumption or in production, or, more precisely, whether the elasticity of substitution in production is less than or greater than the inverse of the elasticity of marginal utility in consumption. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2004.

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 5 (2004)
Issue (Month): 3 (08)
Pages: 263-295

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Handle: RePEc:bla:germec:v:5:y:2004:i:3:p:263-295

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References

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  1. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, June.
  2. Leo Kaas & Leopold von Thadden, 2003. "Unemployment, Factor Substitution and Capital Formation," German Economic Review, Verein für Socialpolitik, vol. 4, pages 475-495, November.
  3. Hellwig, Martin & Irmen, Andreas, 1999. "Wage Growth, Productivity Growth, and the Evolution of Employment," Sonderforschungsbereich 504 Publications 99-86, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  4. Marshall, Alfred, 1890. "The Principles of Economics," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number marshall1890.
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Cited by:
  1. Lucio Baccaro & Marco Simoni, 2010. "Organizational determinants of wage moderation," LSE Research Online Documents on Economics 33510, London School of Economics and Political Science, LSE Library.
  2. Erkki Koskela & Mikko Puhakka, 2006. "Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation," CESifo Working Paper Series 1840, CESifo Group Munich.
  3. Heikki Kauppi & Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections," CESifo Working Paper Series 1343, CESifo Group Munich.

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