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Wages and the Demand for Labor in Unemployment Equilibria

In: Topics in Disequilibrium Economics

Author

Listed:
  • Paavo Peisa

    (University of Helsinki)

Abstract

This paper analyzes the demand for labor under conditions of Keynesian underemployment, where firms cannot sell as much as they wish at given market prices due to a lack of effective demand for output. It is argued that if the inventory holding motive is operative, labor will be demanded until the value of its marginal product is equal to the wage rate. Thus a ceteris paribus reduction in wages leads to a decrease in unemployment, contrary to the conclusion of the Barro-Grossman model.

Suggested Citation

  • Paavo Peisa, 1978. "Wages and the Demand for Labor in Unemployment Equilibria," Palgrave Macmillan Books, in: Steinar Strøm & Lars Werin (ed.), Topics in Disequilibrium Economics, pages 81-92, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-03917-3_5
    DOI: 10.1007/978-1-349-03917-3_5
    as

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