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Efficiency Wages, Unemployment and Macroeconomic Policy

  • Jim Malley
  • Hassan Molana

We provide empirical evidence from a number of European countries, which shows that unemployment and output are positively related when unemployment is low and inversely related when unemployment is high. We then construct a stylised macro-model with goods and labour market imperfections to show that the economy can rationally operate at an inefficient equilibrium in the neighbourhood of which the relationship between output and unemployment is positive. Our results suggest that circumstances exist in which market imperfections pose serious obstacles to the smooth working of expansionary and/or stabilization policies whose final aim is to improve welfare.

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File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_126.pdf
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Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 126.

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Date of creation: Aug 2002
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Handle: RePEc:dun:dpaper:126
Contact details of provider: Postal: Dundee, DD1 4HN
Phone: (01382) 344375
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Web page: http://www.dundee.ac.uk/econman/Email:


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  11. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  14. Hassan Molana & Junxi Zhang, 1999. "Market Structure and Fiscal Policy Effectiveness," Dundee Discussion Papers in Economics 104, Economic Studies, University of Dundee.
  15. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
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  18. Thomas Moutos, 1989. "Turnover Costs, Unemployment and Macroeconomic Policies," Working Papers Series 89/5, University of Stirling, Division of Economics.
  19. Hassan Molana & Thomas Moutos, 1991. "A Note on Taxation, Imperfect Competition and the Balanced Budget Multiplier," Working Papers Series 91/4, University of Stirling, Division of Economics.
  20. Pisauro, Giuseppe, 1991. "The effect of taxes on labour in efficiency wage models," Journal of Public Economics, Elsevier, vol. 46(3), pages 329-345, December.
  21. Olivier Blanchard, 1998. "Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices," NBER Working Papers 6566, National Bureau of Economic Research, Inc.
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  23. Schmidt-Sorensen, Jan Beyer, 1991. "An Efficiency-Wage-Hours Model and Shorter Working Hours," Scottish Journal of Political Economy, Scottish Economic Society, vol. 38(2), pages 113-31, May.
  24. Schmidt-Sorensen, Jan Beyer, 1990. "The equilibrium effort-wage elasticity in efficiency-wage models," Economics Letters, Elsevier, vol. 32(4), pages 365-369, April.
  25. Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 737-52, November.
  26. Reinhorn, Leslie J., 1998. "Imperfect competition, the Keynesian cross, and optimal fiscal policy," Economics Letters, Elsevier, vol. 58(3), pages 331-337, March.
  27. Campbell leith & Chol-Won Li, 2001. "Unemployment and the Productivity Slowdown: A Labour Supply Perspective," Working Papers 2001_13, Business School - Economics, University of Glasgow.
  28. Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-96, September.
  29. Heijdra, Ben J & Ligthart, Jenny E & van der Ploeg, Frederick, 1998. "Fiscal Policy, Distortionary Taxation, and Direct Crowding Out under Monopolistic Competition," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 79-88, January.
  30. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 219-31, June.
  31. repec:ner:tilbur:urn:nbn:nl:ui:12-376256 is not listed on IDEAS
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