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Jobless Recovering and Equilibrium Involuntary Unemployment with a Simple Efficiency Wage Model

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  • Jinpeng Ma

    ()
    (Economics-Camden)

Abstract

The U.S. economy had experienced the "jobless recovering" after the 1990-1991 and 2001 recessions, which has been constantly puzzling the economists, market analysts, and policymakers. This paper uses a simple hiring game in an efficiency wage model framework to resolve that puzzle. Our efficiency wage model emphasizes the importance of the local unemployment rate, which is endogenously determined by firms' hiring decision at a symmetric Nash equilibrium. Our model has a new feature such that nonzero steady involuntary unemployment at equilibrium may coexist with an efficiency wage that stays below the market-clearing wage. Moreover, we show how it is possible to use our model to study income inequality as a result of skill-biased technical change, inter-industry wage differentials, and skill wage premiums. We also demonstrate how it is possible to derive the wage curve (Blanchflower and Oswald (1994)) as an equilibrium locus of our model.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200404.

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Length: 20 pages
Date of creation: 17 Feb 2004
Date of revision:
Handle: RePEc:rut:rutres:200404

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Keywords: Jobless recovering;

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  1. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
  2. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  3. David G. Blanchflower & Andrew J. Oswald, 1989. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
  4. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  6. Richard Rogerson, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter.
  7. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  8. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  9. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
  10. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June.
  11. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  12. Phelps, Edmund S, 1969. "The New Microeconomics in Inflation and Employment Theory," American Economic Review, American Economic Association, vol. 59(2), pages 147-60, May.
  13. Carol Corrado, 2003. "Industrial production and capacity utilization: the 2002 historical and annual revision," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 151-176.
  14. Lawrence H. Summers, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," NBER Working Papers 2590, National Bureau of Economic Research, Inc.
  15. Akerlof, George A., 2001. "Behavioral Macroeconomics and Macroeconomic Behavior," Nobel Prize in Economics documents, Nobel Prize Committee 2001-4, Nobel Prize Committee.
  16. Stacey L. Schreft & Aarti Singh, 2003. "A closer look at jobless recoveries," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-73.
  17. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
  18. repec:fth:prinin:343 is not listed on IDEAS
  19. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
  20. Bharat Trehan, 2001. "Unemployment and productivity," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct12.
  21. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1483-1504, November.
  22. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  23. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
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Cited by:
  1. David G. Blanchflower & Andrew J. Oswald, 2005. "The Wage Curve Reloaded," NBER Working Papers 11338, National Bureau of Economic Research, Inc.

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