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Wage Growth, Productivity Growth, and the Evolution of Employment

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  • Hellwig, Martin F
  • Irmen, Andreas

Abstract

This Paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivity grows at the same rate as wages, the real interest rate is below the laissez-faire level, and so is the common growth rate of consumption, demand, and output. In these steady-state equilibria employment contracts at a constant rate equal to the difference between the growth rates of productivity and output. This contrasts with the view that equality of wage growth and productivity growth is a condition for constant employment.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2927.

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Date of creation: Aug 2001
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Handle: RePEc:cpr:ceprdp:2927

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Keywords: employment; endogenous technical change; perfect competition; productivity growth; wages;

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Cited by:
  1. Martin Hellwig, 2004. "The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis," German Economic Review, Verein für Socialpolitik, vol. 5(3), pages 263-295, 08.
  2. Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.
  3. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute for the Study of Labor (IZA).
  4. Lutz G. Arnold, 2006. "Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?," German Economic Review, Verein für Socialpolitik, vol. 7, pages 87-112, 02.

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