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Efficiency Wages, Unemployment and Macroeconomic Policy

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  • Jim Malley
  • Hassan Molana

Abstract

We provide empirical evidence from a number of European countries, which shows that unemployment and output are positively related when unemployment is low and inversely related when unemployment is high. We then construct a stylised macro-model with goods and labour market imperfections to show that the economy can rationally operate at an inefficient equilibrium in the neighbourhood of which the relationship between output and unemployment is positive. Our results suggest that circumstances exist in which market imperfections pose serious obstacles to the smooth working of expansionary and/or stabilization policies whose final aim is to improve welfare.

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Bibliographic Info

Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 126.

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Date of creation: Aug 2002
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Handle: RePEc:dun:dpaper:126

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Postal: Dundee, DD1 4HN
Phone: (01382) 344375
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Web page: http://www.dundee.ac.uk/econman/
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  24. Malley, Jim & Moutos, Thomas, 2001. " Capital Accumulation and Unemployment: A Tale of Two "Continents."," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 79-99, March.
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