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The Relationship between Output and Unemployment with Efficiency Wages

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  • Jim Malley
  • Hassan Molana

Abstract

We construct a stylised model of the supply side with goods and labour market imperfections to show that an economy can rationally operate at a low-effort state in which the relationship between output and unemployment is positive. We examine data from the G7 countries over 1960-2001 and find that only German data strongly favour a persistent negative relationship between the level of output and rate of unemployment. The consequence of this is that circumstances exist in which market imperfections could pose serious obstacles to the smooth working of expansionary and/or stabilisation policies and a positive demand shock might have adverse effects on employment. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2007.

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Bibliographic Info

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

Volume (Year): 8 (2007)
Issue (Month): (November)
Pages: 561-577

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Handle: RePEc:bla:germec:v:8:y:2007:i::p:561-577

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References

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  1. STROBL, Eric & WALSH, Frank, 2003. "Estimating the shirking model with variable effort," CORE Discussion Papers 2003075, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, vol. 113(489), pages 666-694, 07.
  3. Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
  4. Jim Malley & Thomas Moutos, . "Capital Accumulation and Unemployment: A Tale of Two 'Continents'," Working Papers 9820, Business School - Economics, University of Glasgow.
  5. Carlin, Wendy & Soskice, David, 2005. "Macroeconomics: Imperfections, Institutions, and Policies," OUP Catalogue, Oxford University Press, number 9780198776222, September.
  6. Alison Booth & Yu-Fu Chen & Gylfi Zoega, 1999. "Hiring And Firing: A Tale Of Two Thresholds," Dundee Discussion Papers in Economics 095, Economic Studies, University of Dundee.
  7. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  8. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Jim Malley & Hassan Molana, 2001. "Monopolistic Competition, Efficiency Wages and Perverse Effects of Demand Shock," CESifo Working Paper Series 475, CESifo Group Munich.
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Cited by:
  1. alamro, Hassan & Al-dalaien, Qusay, 2014. "Modeling the relationship between GDP and unemployment for Okun’s law specific to Jordan," MPRA Paper 55302, University Library of Munich, Germany.

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