Wage Flexibility and Unemployment: The Keynesian Perspective Revisited
Keynes' main concern in the "General Theory" is about the capacity of an economy to return to full employment equilibrium when subject to a (negative) demand shock. He maintains that money wages cuts may not help reabsorb unemployment, as they do not necessarily imply a fall in real wages. On the contrary, wage rigidity may be necessary for avoiding that a cumulative process propels the economy far away the full employment equilibrium. Co-ordination failures in the investment-saving market are behind this conclusion. However, the analysis is carried out within a static equilibrium framework. This paper is an attempt to focus on the problems of intertemporal co-ordination arising within the context of a sequential economy. Our analysis of the out-of-equilibrium process of adjustment stirred by a shock allows to generalize the original Keynesian intuition. Unemployment emerges as the result of a lack of co-ordination due to irreversibly constrained choices, and not only nominal but also real wage flexibility does not necessarily help to restore equilibrium. As a matter of fact, it may even be harmful, by triggering processes that make the economy diverge from equilibrium. Our analysis has important analytical implications as regards the role of market imperfections and the interpretation of the effects of monetary policy. Copyright (c) Scottish Economic Society 2004.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 51 (2004)
Issue (Month): 5 (November)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0036-9292|
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0036-9292|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- d’ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GERARD-VARET, L.-A., 1986.
"On monopolistic competition and involuntary unemployment,"
CORE Discussion Papers
1986035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Claude d'Aspremont & Rodolphe Dos Santos Ferreira & Louis-André Gérard-Varet, 1990. "On Monopolistic Competition and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 895-919.
- d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, "undated". "On monopolistic competition and involuntary unemployment," CORE Discussion Papers RP 909, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Oliver Hart, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 109-138.
- Mario Amendola & Jean-Luc Gaffard, 1998.
"Out of equilibrium,"
- Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
- Francesco Saraceno, 2003.
"Wage Regimes, Accumulation and Finance Constraints: Keynesian Unemployment Revisited,"
- Francesco Saraceno, 2004. "Wage Regimes, Accumulation and Finance Constraints : Keynesian Unemployment Revisited," Sciences Po publications 2004-01, Sciences Po.
- Francesco Saraceno, 2004. "Wage Regimes, Accumulation and Finance Constraints : Keynesian Unemployment Revisited," Working Papers hal-01065470, HAL.
- Francesco Saraceno, 2004. "Wage Regimes, Accumulation and Finance Constraints: Keynesian Unemployment Revisited," Documents de Travail de l'OFCE 2004-01, Observatoire Francais des Conjonctures Economiques (OFCE).
- James Tobin, 1993.
"Price Flexibility and Output Stability: An Old Keynesian View,"
Journal of Economic Perspectives,
American Economic Association, vol. 7(1), pages 45-65, Winter.
- James Tobin, 1991. "Price Flexibility and Output Stability: An Old Keynesian View," Cowles Foundation Discussion Papers 994R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1991.
- Dreze, Jacques H., 1997.
"Walras--Keynes equilibria coordination and macroeconomics,"
European Economic Review,
Elsevier, vol. 41(9), pages 1735-1762, December.
- DREZE, Jacques H., 1997. "Walras-Keynes equilibria coordination and macroeconomics," CORE Discussion Papers 1997051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247.
- Hicks, J R, 1970. "A Neo-Austrian Growth Theory," Economic Journal, Royal Economic Society, vol. 80(318), pages 257-281, June.
- Silvestre, Joaquim, 1993.
"The Market-Power Foundations of Macroeconomic Policy,"
Journal of Economic Literature,
American Economic Association, vol. 31(1), pages 105-141, March.
- Silvestre, J., 1991. "The Market-Power Foundations of Macroeconomic Policy," Papers 374, California Davis - Institute of Governmental Affairs.
- Axel Leijonhufvud, 2000. "Macroeconomic Instability and Coordination," Books, Edward Elgar Publishing, number 750.
When requesting a correction, please mention this item's handle: RePEc:bla:scotjp:v:51:y:2004:i:5:p:654-674. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.