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Efficiency-wage Hypothesis and the Operational Production Pattern

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  • Carolin V. Schürg

    ()
    (Justus Liebig University, Giessen)

  • Nadeem Naqvi

    ()
    (Justus Liebig University, Giessen)

Abstract

An economy’s production set is the collection of all net output vectors that the economy is capable of producing with a given technology and fixed quantities of primary factors of production. The boundary of this set is called the production possibility frontier or PPF. We show that, if the efficiency-wage hypothesis holds, a country’s PPF, though conceptually valid, is an operationally irrelevant concept, because the economy never operates on the PPF, which is a view that ought to be appreciated in light of persistent unemployment in the new structure of economies of the post-21st-Century-crisis world.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/46-2011_naqvi.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201146.

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Length: 14 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201146

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Keywords: general equilibrium; production set; production possibility frontier; efficiency wage; economic policy; labor market;

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  1. Alan Blinder, 2010. "Teaching Macro Principles after the Financial Crisis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 385-390, September.
  2. Lawrence H. Summers, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," NBER Working Papers 2590, National Bureau of Economic Research, Inc.
  3. Neary, J Peter, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 551-70, August.
  4. Henrik Egbert & Nadeem Naqvi, 2011. "Market-dependent Production Set," MAGKS Papers on Economics 201145, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. Batra, Raveendra N. & Naqvi, Nadeem, 1989. "Non-traded and intermediate goods and the theory of protection," European Economic Review, Elsevier, vol. 33(4), pages 721-735, April.
  6. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
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