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Consumer Demand and Equilibrium Unemployment in a Working Model of the Customer-Market Incentive-Wage Economy

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  • Phelps, Edmund S

Abstract

Though not conceived as a constant, the natural unemployment rate was taken to be invariant to supply shocks until the late 1970s and to real demand shocks until now. The largely micro-theoretic model here is one in a series deriving the natural rate path from general equilibrium. In this model, the labor market exhibits generalized real-wage rigidity, resulting from the use of "incentive wages" to combat shirking, and the asset backing shares is the firms' customers, arising from customer-market friction. One finding is that increased consumer demand drives up the natural rate by driving real interest rates up. Copyright 1992, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 107 (1992)
Issue (Month): 3 (August)
Pages: 1003-32

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Handle: RePEc:tpr:qjecon:v:107:y:1992:i:3:p:1003-32

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Hian Teck Hoon & Edmund S. Phelps, 2004. "Future fiscal and budgetary shocks," Discussion Papers 0405-01, Columbia University, Department of Economics.
  2. Junankar, P.N. & Madsen, J.B., 1996. "Unemployment in the OECD: models and mysteries," Discussion Paper Series In Economics And Econometrics 9648, Economics Division, School of Social Sciences, University of Southampton.
  3. Jan J. Rutkowski & Stefano Scarpetta, 2005. "Enhancing Job Opportunities : Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 7408, October.
  4. repec:hal:ciredw:hal-00866429 is not listed on IDEAS
  5. Carlos Borondo, 1994. "La rigidez nominal de los precios de la Nueva Economía Keynesiana: una panorámica," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 245-288, May.
  6. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
  7. David G. Blanchflower & Andrew J. Oswald, 1994. "Estimating a Wage Curve for Britain 1973-1990," NBER Working Papers 4770, National Bureau of Economic Research, Inc.
  8. Olivier Blanchard, 2007. "A Review of Richard Layard, Stephen Nickell, and Richard Jackman's Unemployment: Macroeconomic Performance and the Labour Market," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 410-418, June.
  9. Céline Guivarch & Renaud Crassous & Olivier Sassi & Stephane Hallegatte, 2011. "The costs of climate policies in a second best world with labour market imperfections," Post-Print halshs-00724487, HAL.
  10. repec:hal:wpaper:hal-00866429 is not listed on IDEAS
  11. Howard R. Vane & Chris Mulhearn, 2009. "Interview with Edmund S. Phelps," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 109-24, Summer.

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