Consumer Demand and Equilibrium Unemployment in a Working Model of the Customer-Market Incentive-Wage Economy
Though not conceived as a constant, the natural unemployment rate was taken to be invariant to supply shocks until the late 1970s and to real demand shocks until now. The largely micro-theoretic model here is one in a series deriving the natural rate path from general equilibrium. In this model, the labor market exhibits generalized real-wage rigidity, resulting from the use of "incentive wages" to combat shirking, and the asset backing shares is the firms' customers, arising from customer-market friction. One finding is that increased consumer demand drives up the natural rate by driving real interest rates up. Copyright 1992, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 107 (1992)
Issue (Month): 3 (August)
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