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Effects of Productivity, Total Domestic-Product Demand and "Incentive Wages" on Unemployment in a Non-monetary Customer-Market Model of the Small Open Economy

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  • Phelps, Edmund S

Abstract

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.

Suggested Citation

  • Phelps, Edmund S, 1990. " Effects of Productivity, Total Domestic-Product Demand and "Incentive Wages" on Unemployment in a Non-monetary Customer-Market Model of the Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 353-367.
  • Handle: RePEc:bla:scandj:v:92:y:1990:i:2:p:353-67
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    Cited by:

    1. Fiona Duffy & Patrick Paul Walsh, 2000. "A Regional Analysis of Wage Determination in Poland," LICOS Discussion Papers 8700, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    2. David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters,in: Differences and Changes in Wage Structures, pages 145-174 National Bureau of Economic Research, Inc.
    3. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-1043, September.

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