Is Labour Market Flexibility Desirable Or Harmful? A Further Dynamic Perspective
AbstractA common belief of mainstream economics as well as underpinning government policy is that the more flexible real wage is, the lower is unemployment. In this paper we study the dynamics of a standard neoclassical labour market under the simplest Walrasian adjustment rule. We show that when consumption and leisure are sufficiently low substitutes, an increase in real wage flexibility may destabilize the unique Walrasian equilibrium of the economy, triggering fluctuations in wages and employment. Minimal departures from strict (Walrasian) neoclassical equilibrium modelling are required to obtain instability results for wage flexibility. Copyright � 2009 The Authors. Journal compilation � 2009 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Metroeconomica.
Volume (Year): 61 (2010)
Issue (Month): 2 (05)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0026-1386
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- Luciano Fanti, 2012. "Prices, productivity and irregular cycles in a walrasian labour market," Discussion Papers 2012/152, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
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