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The Choice of Technology and Equilibrium Wage Rigidity

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  • Haiwen Zhou

    (Department of Economics, Old Dominion University, Norfolk, VA 23529, USA)

Abstract

In this general equilibrium model, firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Capital and labor are the two factors of production. The existence of efficiency wages leads to unemployment. The model is able to explain some interesting observations of the labor market. First, even though there is neither long-term labor contract nor costs of wage adjustment, wage rigidity is an equilibrium phenomenon¡ªan increase in the exogenous job separation rate,the size of the population, the cost of exerting effort, and the probability that shirking is detected will not change the equilibrium wage rate. Second, the equilibrium wage rate increases with the level of capital stock. Third, a higher level of capital stock does not necessarily reduce the unemployment rate. That is, there is no monotonic relationship between capital accumulation and the unemployment rate.

Suggested Citation

  • Haiwen Zhou, 2015. "The Choice of Technology and Equilibrium Wage Rigidity," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 10(2), pages 252-271, June.
    • Handle: RePEc:fec:journl:v:10:y:2015:i:2:p:252-271
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-004-015-0011-8
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    Cited by:

    1. Haiwen Zhou, 2018. "Impact of international trade on unemployment under oligopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 365-379, May.
    2. Lei Wen & Haiwen Zhou, 2023. "The choice of technology in economic development," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 747-763, December.
    3. Haiwen Zhou, 2020. "Monitoring Intensity and Technology Choice in a Model of Unemployment," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 46(3), pages 504-520, June.

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    More about this item

    Keywords

    unemployment; efficiency wages; wage rigidity; choice of technology; oligopolistic competition;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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