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Efficiency Wages

In: Growth and Employment in Europe

Author

Listed:
  • Martin Zagler

    (Vienna University of Economics and Business Administration)

Abstract

This chapter establishes a theoretical relation between the level of unemployment and the economic rate of growth. It is posited that in a model with a monopolistically competitive manufacturing sector and a competitive innovation sector, both of which pay efficiency wages, the equilibrium unemployment rate — the Nawru — exhibits an unambiguously negative impact on the long-run growth performance, because it reduces the innovative capacity of the economy. Only if efficiency levels are different across sectors can a causal relation from the growth rate to the level of unemployment be established, since a lower level of innovation shifts the burden of inducing efficiency towards the manufacturing sector, thus fostering unemployment.

Suggested Citation

  • Martin Zagler, 2004. "Efficiency Wages," Palgrave Macmillan Books, in: Growth and Employment in Europe, chapter 2, pages 25-36, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-50632-9_2
    DOI: 10.1057/9780230506329_2
    as

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