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The Relationship between Output and Unemployment with Efficiency Wages

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  • Jim Malley
  • Hassan Molana

Abstract

. We construct a stylised model of the supply side with goods and labour market imperfections to show that an economy can rationally operate at a low‐effort state in which the relationship between output and unemployment is positive. We examine data from the G7 countries over 1960–2001 and find that only German data strongly favour a persistent negative relationship between the level of output and rate of unemployment. The consequence of this is that circumstances exist in which market imperfections could pose serious obstacles to the smooth working of expansionary and/or stabilisation policies and a positive demand shock might have adverse effects on employment.

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  • Jim Malley & Hassan Molana, 2007. "The Relationship between Output and Unemployment with Efficiency Wages," German Economic Review, Verein für Socialpolitik, vol. 8(4), pages 561-577, November.
    • Handle: RePEc:bla:germec:v:8:y:2007:i:4:p:561-577
    DOI: 10.1111/j.1468-0475.2007.00418.x
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    References listed on IDEAS

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    1. Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
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    10. Jim Malley & Hassan Molana, 2000. "Monopolistic Competition, Efficiency Wages and Perverse Effects of Demand Shock," Working Papers 2000_20, Business School - Economics, University of Glasgow, revised Feb 2001.
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    Cited by:

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    3. Kristina Matuzeviciute & Mindaugas Butkus & Akvile Karaliute, 2017. "Do Technological Innovations Affect Unemployment? Some Empirical Evidence from European Countries," Economies, MDPI, vol. 5(4), pages 1-19, December.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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