Negishi-Solow Efficiency Wages, Unemployment Insurance and Dynamic Deterministic Indeterminacy
AbstractThis paper introduces efficiency wages designed to provide workers withincentives to make appropriate effort levels, and involuntary unemployment,along the pioneering lines of Negishi (1979), Solow (1979), Shapiro andStiglitz (1984), in a dynamic model involving heterogeneous agents and financialconstraints as in Woodford (1986) and Grandmont, Pintus and deVilder (GPV, 1998). Effort varies continuously while there is unemploymentinsurance funded out of taxation of labour incomes. Increasing unemploymentinsurance is beneficial to employment along the deterministic stationarystate, and can even in some cases lead to a Pareto welfare improvementfor all agents, through general equilibrium effects, by generating higher individualreal labour incomes, hence larger consumptions of employed andunemployed workers, and thus a higher production. On the other hand, thelocal (in)determinacy properties of the stationary state are opposite to thoseobtained in the competitive specification of the model (GPV, 1998) : localdeterminacy (indeterminacy) occurs for elasticities of capital-efficient laboursubstitution lower (larger) than a quite small bound. Increasing unemploymentinsurance is more likely to lead to local indeterminacy and thus togenerate dynamic inefficiencies due to the corresponding expectations coordinationfailures.
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Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2006-16.
Date of creation: 2006
Date of revision:
Other versions of this item:
- Jean-Michel Grandmont, 2008. "Negishi-Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 247-272.
- Jean-Michel Grandmont, 2006. "Negishi-Solow Efficiency Wages, Unemployment Insurance and Dynamic Deterministic Indeterminacy," Working Papers 2006_60, Department of Economics, University of Venice "Ca' Foscari".
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
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