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Wages, Employment and Futures Markets

  • Ariane Breitfelder

    ()

    (Department of Economics, University of Munich)

  • Udo Broll

    ()

    (Department of Economics, Dresden University of Technology)

  • Kit Pong Wong

    ()

    (School of Economics and Finance, University of Hong Kong)

Registered author(s):

    This paper places the competitive firm under output price uncertainty in a standard efficiency wage model, wherein the work effort of labor depends on the wage rate set by the firm. Irrespective of the availability of a commodity futures market, we show that the Solow condition holds in that the equilibrium effort-wage elasticity is unity. The optimal wage rate is preference-free and independent of the underlying output price uncertainty under the efficiency wage hypothesis. Furthermore, we show that the introduction of the commodity futures market induces the firm to hire more labor and thereby produce more output if the firm is sufficiently risk averse.

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    Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

    Volume (Year): 21 (2008)
    Issue (Month): 2 (Autumn)
    Pages: 118-123

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    Handle: RePEc:fep:journl:v:21:y:2008:i:2:p:118-123
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    1. Schlicht, Ekkehart, 1992. "Wage Generosity," Munich Reprints in Economics 3165, University of Munich, Department of Economics.
    2. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-95, December.
    3. Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February.
    4. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
    5. Lin, Chung-cheng & Lai, Ching-chong, 1994. "The turnover costs and the Solow condition in an efficiency wage model with intertemporal optimization," Economics Letters, Elsevier, vol. 45(4), pages 501-505, August.
    6. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
    7. Lin, Chung-Cheng & Lai, Ching-Chong, 1997. "The Solow Condition in an Efficiency Wage Model with Overtime Work," Australian Economic Papers, Wiley Blackwell, vol. 36(69), pages 342-50, December.
    8. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    9. Broll, Udo & Wong, Kit Pong & Zilcha, Itzhak, 1999. "Multiple Currencies and Hedging," Economica, London School of Economics and Political Science, vol. 66(264), pages 421-32, November.
    10. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics 1255, University of Munich, Department of Economics.
    11. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
    12. Malcomson, James M, 1981. "Unemployment and the Efficiency Wage Hypothesis," Economic Journal, Royal Economic Society, vol. 91(364), pages 848-66, December.
    13. Pisauro, Giuseppe, 1991. "The effect of taxes on labour in efficiency wage models," Journal of Public Economics, Elsevier, vol. 46(3), pages 329-345, December.
    14. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    15. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
    16. Kit Pong Wong, 2003. "Export Flexibility And Currency Hedging," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1295-1312, November.
    17. Katz, Eliakim & Paroush, Jacob, 1979. "The effect of forward markets on exporting firms," Economics Letters, Elsevier, vol. 4(3), pages 271-274.
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