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Labour Demand and Wage-induced Innovations: Evidence from the OECD countries

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  • Jakob Madsen
  • Richard Damania

Abstract

This paper shows that increasing real wages steepens or reverses the slope of the labour demand schedule because increasing wages give firms incentives to innovate and to invest in newer and more efficient vintages of capital. Using macroeconomic data for the OECD countries it is shown that the efficiency inducement of higher real wages steepens the traditional neoclassical labour demand function substantially. Taking into account the adverse demand effects of wage reductions it is doubtful that real wage reductions are a cure for the unemployment problem in the OECD countries.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 15 (2001)
Issue (Month): 3 ()
Pages: 323-334

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Handle: RePEc:taf:irapec:v:15:y:2001:i:3:p:323-334

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References

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  1. Olivier Jean Blanchard, 1988. "Unemployment: Getting the Questions Right--and Some of the Answers," Working papers 502, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
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Cited by:
  1. Abbas Valadkhani, 2003. "An Empirical Analysis of Australian Labour Productivity," Australian Economic Papers, Wiley Blackwell, vol. 42(3), pages 273-291, 09.
  2. Tim Bulman & John Simon, 2003. "Productivity and Inflation," RBA Research Discussion Papers, Reserve Bank of Australia rdp2003-10, Reserve Bank of Australia.

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