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Efficiency Wages, Inflation And Growth

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  • Harilaos Mertzanis

    () (Hellenic Capital Market Commission)

Abstract

The efficiency wage hypothesis is introduced and a work effort function is specified in which labor productivity depends on the distribution of income between wages and profits and the general level of output. The function is then incorporated in a structuralist-Keynesian growth model in which investment decisions depend on income distribution, inflation and the level of output. A ¡®conflict theory of inflation¡¯ is then developed in which wage and price change depend on real income aspirations and the rate of employment. It is, then, shown that changes in income distribution exert a direct effect, via aggregate demand, and an indirect effect, via work effort, on output and inflation. The two separate effects may be complementary or contradictory. The direction and magnitude of the overall impact on inflation and growth depends on institutional factors, such as the specification of the effort function, the different savings propensities, the determinants of capital accumulation and the state of income distribution.

Suggested Citation

  • Harilaos Mertzanis, 2009. "Efficiency Wages, Inflation And Growth," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 131-151, December.
  • Handle: RePEc:jed:journl:v:34:y:2009:i:2:p:131-151
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    References listed on IDEAS

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    1. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
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    3. Skott, Peter, 1988. "Finance, Saving and Accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 12(3), pages 339-354, September.
    4. Dean Baker & Andrew Glyn & David Howell & John Schmitt, 2002. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2002-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    5. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
    6. Steinar Holden & Fredrik Wulfsberg, 2007. "Are Real Wages Rigid Downwards?," CESifo Working Paper Series 1983, CESifo Group Munich.
    7. Philip Vermeulen & Daniel A. Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2012. "Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1631-1650, December.
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    9. Philip Arestis & Malcolm Sawyer, 2005. "Aggregate demand, conflict and capacity in the inflationary process," Cambridge Journal of Economics, Oxford University Press, vol. 29(6), pages 959-974, November.
    10. Dutt, Amitava Krishna, 1992. "Conflict inflation, distribution, cyclical accumulation and crises," European Journal of Political Economy, Elsevier, vol. 8(4), pages 579-597, December.
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    More about this item

    Keywords

    Efficiency Wages; Conflict Inflation; Growth;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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