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The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis

Author

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  • Hellwig Martin

    (Max Planck Institute for Research on Collective Goods,Bonn, Germany)

Abstract

The paper studies the relation between real wage rates and employment in an intertemporal model in which expectations of subsequent real wage rates affect equilibrium capital investments and equilibrium interest rates in previous periods. Whether the wage-employment tradeoff is more favourable or less favourable in this model than in the static model with given capital depends on whether there is relatively more substitution in consumption or in production, or, more precisely, whether the elasticity of substitution in production is less than or greater than the inverse of the elasticity of marginal utility in consumption.

Suggested Citation

  • Hellwig Martin, 2004. "The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis," German Economic Review, De Gruyter, vol. 5(3), pages 263-295, August.
    • Handle: RePEc:bpj:germec:v:5:y:2004:i:3:p:263-295
    DOI: 10.1111/j.1465-6485.2004.00109.x
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    Cited by:

    1. Erkki Koskela & Mikko Puhakka, 2006. "Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation," CESifo Working Paper Series 1840, CESifo.
    2. Baccaro, Lucio & Simoni, Marco, 2010. "Organizational determinants of wage moderation," LSE Research Online Documents on Economics 33510, London School of Economics and Political Science, LSE Library.
    3. Koskela, Erkki & Puhakka, Mikko, 2007. "Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations," IZA Discussion Papers 3246, IZA Network @ LISER.
    4. Heikki Kauppi & Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections," CESifo Working Paper Series 1343, CESifo.

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