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Relative Price Changes, Wages and Unemployment in a Specific Factors Model with Search Frictions

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  • Klaus Wälde
  • Pia Weiss

Abstract

This paper analyzes the effects of changes in the relative product price on wages and unemployment of a small open economy in a specific factors model characterized by search frictions. It shows that unemployment and wages move in opposite directions, i.e., high unemployment is associated with low wages and low unemployment with high wages. The reason for the employment effect is found to be individual wage bargaining.

Suggested Citation

  • Klaus Wälde & Pia Weiss, 2006. "Relative Price Changes, Wages and Unemployment in a Specific Factors Model with Search Frictions," Review of Development Economics, Wiley Blackwell, vol. 10(3), pages 400-410, August.
  • Handle: RePEc:bla:rdevec:v:10:y:2006:i:3:p:400-410
    DOI: 10.1111/j.1467-9361.2006.00366.x
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    File URL: https://doi.org/10.1111/j.1467-9361.2006.00366.x
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
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    Cited by:

    1. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," CEDI Discussion Paper Series 06-12, Centre for Economic Development and Institutions(CEDI), Brunel University.
    2. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.
    3. Noel GASTON & YOSHIMI Taiyo, 2020. "Heterogenous Job Separations and the Balassa-Samuelson Effect," Discussion papers 20032, Research Institute of Economy, Trade and Industry (RIETI).
    4. Xinpeng Xu & Yu Sheng, 2014. "Terms of Trade Shocks and Endogenous Search Unemployment: A Two-Sector Model with Non-Traded Goods," Pacific Economic Review, Wiley Blackwell, vol. 19(2), pages 201-215, May.
    5. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.

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