Effects of Productivity, Total Domestic-Product Demand and "Incentive Wages" on Unemployment in a Non-monetary Customer-Market Model of the Small Open Economy
A small, open economy is studied where the labor market exhibits job rationing owing to the elevated wage induced by the "shirking" problem. With the world product market "neoclassical," a (bad) national productivity shock reduces employment and the real wage even in the short run; a "demand" shock is undefined for a country too small to affect price nonnegligibly. With the world a "customer market," employment may rise with the domestic productivity shock before it falls; increased foreign demand raises both employment and the relative world price. But it does not follow that a general increase of demand raises world employment. Copyright 1990 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 92 (1990)
Issue (Month): 2 ()
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