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The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis

  • Martin Hellwig

The paper studies the relation between real wage rates and employment in an intertemporal model in which expectations of subsequent real wage rates affect equilibrium capital investments and equilibrium interest rates in previous periods. Whether the wage-employment tradeoff is more favourable or less favourable in this model than in the static model with given capital depends on whether there is relatively more substitution in consumption or in production, or, more precisely, whether the elasticity of substitution in production is less than or greater than the inverse of the elasticity of marginal utility in consumption. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2004.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 5 (2004)
Issue (Month): 3 (08)
Pages: 263-295

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Handle: RePEc:bla:germec:v:5:y:2004:i:3:p:263-295
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  1. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
  2. Kaas, Leo & von Thadden, Leopold, 2001. "Unemployment, Factor Substitution, and Capital Formation," Discussion Paper Series 1: Economic Studies 2001,01, Deutsche Bundesbank, Research Centre.
  3. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, July.
  4. Hellwig, Martin & Irmen, Andreas, 1999. "Wage Growth, Productivity Growth, and the Evolution of Employment," Sonderforschungsbereich 504 Publications 99-86, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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