Wages, Employment and Futures Markets
AbstractThis paper places the competitive firm under output price uncertainty in a standard efficiency wage model, wherein the work effort of labor depends on the wage rate set by the firm. Irrespective of the availability of a commodity futures market, we show that the Solow condition holds in that the equilibrium effort-wage elasticity is unity. The optimal wage rate is preference-free and independent of the underlying output price uncertainty under the efficiency wage hypothesis. Furthermore, we show that the introduction of the commodity futures market induces the firm to hire more labor and thereby produce more output if the firm is sufficiently risk averse.
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Bibliographic InfoArticle provided by Finnish Economic Association in its journal Finnish Economic Papers.
Volume (Year): 21 (2008)
Issue (Month): 2 (Autumn)
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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