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The Effect of an Employment Subsidy in Persistent Stagnation

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  • Ryu-ichiro Murota

Abstract

This paper develops a money-in-the-utility-function model in which a Phillips curve arises because of an efficiency wage and in which people's desire to accumulate money is insatiable. If this desire is strong enough, an economy falls into persistent stagnation with a deficiency in aggregate demand, unemployment, and deflation. This paper shows a counterintuitive result that an increase in an employment subsidy can exacerbate unemployment by worsening deflation and depressing aggregate demand.

Suggested Citation

  • Ryu-ichiro Murota, 2023. "The Effect of an Employment Subsidy in Persistent Stagnation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 79(1), pages 1-31.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2022-0015
    DOI: 10.1628/fa-2022-0015
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    More about this item

    Keywords

    aggregatedemand; efficiencywage; employmentsubsidy; persistentstagnation; Phillipscurve;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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