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Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model

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  • Tanaka Yasuhito

    (Doshisha University, Japan)

Abstract

We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. When there exists involuntary unemploymnet, the nominal wage rate may decline. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy.

Suggested Citation

  • Tanaka Yasuhito, 2022. "Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 67(1), pages 11-26, April.
    • Handle: RePEc:vrs:subboe:v:67:y:2022:i:1:p:11-26:n:5
    DOI: 10.2478/subboec-2022-0002
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    References listed on IDEAS

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    1. Masayuki Otaki, 2016. "Keynes’s General Theory Reconsidered in the Context of the Japanese Economy," SpringerBriefs in Economics, Springer, number 978-4-431-55915-3, October.
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    3. Schultz, Christian, 1992. "The impossibility of involuntary unemployment in an overlapping generations model with rational expectations," Journal of Economic Theory, Elsevier, vol. 58(1), pages 61-76, October.
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    More about this item

    Keywords

    involuntary unemployment; monopolistic competition; wage rate decline; real balance effect;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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