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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. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

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
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    References listed on IDEAS

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    1. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, pages 773-785.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, pages 1695-1725.
    3. Francisco Alcalá & Antonio Ciccone, 2004. "Trade and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 613-646.
    4. Shantayanan Devarajan & Dani Rodrik, 1991. "Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa," NBER Working Papers 3727, National Bureau of Economic Research, Inc.
    5. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
    6. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    7. Devarajan, Shantayanan & de Melo, Jaime, 1990. "Membership in the CFA zone : Odyssean journey or Trojan horse?," Policy Research Working Paper Series 482, The World Bank.
    8. Bernard Gauthier & Isidro Soloaga & James Tybout, 2002. "A Firm's-Eye View of Commercial Policy and Fiscal Reforms in Cameroon," World Bank Economic Review, World Bank Group, vol. 16(3), pages 449-472, December.
    9. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275, December.
    10. Devarajan, Shantayanan & de Melo, Jaime, 1987. "Evaluating participation in African monetary unions: A statistical analysis of the CFA Zones," World Development, Elsevier, vol. 15(4), pages 483-496, April.
    11. Tybout, James, et al, 1997. "Firm-Level Responses to the CFA Devaluation in Cameroon," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 3-34, March.
    12. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, pages 773-785.
    13. repec:mes:challe:v:31:y:1988:i:4:p:56-58 is not listed on IDEAS
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    Cited by:

    1. 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.
    2. 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.
    3. 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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