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Relative Movements of Real Wages and Output

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  • Jochen Hartwig

Abstract

Keynes's essay "Relative Movements of Real Wages and Output" is widely believed to be an important amendment to his General Theory because, in this essay, Keynes relaxed his core assumption of decreasing marginal returns to labour. Non-decreasing marginal returns, however, do not sit comfortably with the prime innovation of the General Theory: the Principle of Effective Demand. This will be demonstrated by performing - for the first time in the literature - numerical simulations with Keynes's Aggregate-Demand-Aggregate-Supply (D/Z) model. The view that Keynes's 1939 essay constitutes an important amendment to his General Theory thus has to be put into perspective.

Suggested Citation

  • Jochen Hartwig, 2014. "Relative Movements of Real Wages and Output," KOF Working papers 14-355, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:14-355
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    File URL: http://dx.doi.org/10.3929/ethz-a-010111028
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    References listed on IDEAS

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    1. Jochen Hartwig, 2011. "Keynes's Aggregate Supply Function," KOF Working papers 11-282, KOF Swiss Economic Institute, ETH Zurich.
    2. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
    3. Paul Davidson, 2002. "Financial Markets, Money and the Real World," Books, Edward Elgar Publishing, number 2467.
    4. Jochen Hartwig, 2004. "Beyond the Market Paradigm: on Keynes's Principle of Effective Demand, and on the Irrelevance of Rigidities for His Explanation of Involuntary Unemployment," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 12(1), pages 67-94.
    5. John King, 1993. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Working Papers 1993.16, School of Economics, La Trobe University.
    6. J. E. King, 1994. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(1), pages 3-31, September.
    7. Jochen Hartwig, 2006. "Explaining the aggregate price level with Keynes's principle of effective demand," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 469-492.
    8. Jochen Hartwig, 2011. "Aggregate Demand and Aggregate Supply: Will the Real Keynes Please Stand Up?," Review of Political Economy, Taylor & Francis Journals, vol. 23(4), pages 613-618, October.
    9. Jochen Hartwig, 2007. "Keynes vs. the Post Keynesians on the Principle of Effective Demand," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 14(4), pages 725-739.
    10. Cottrell, Allin F. & Darity, William Jr., 1991. "IS-LM under increasing returns," Journal of Macroeconomics, Elsevier, vol. 13(4), pages 675-690.
    11. Davidson, Paul, 1983. "The Dubious Labor Market Analysis in Meltzer's Restatement of Keynes' Theory," Journal of Economic Literature, American Economic Association, vol. 21(1), pages 52-56, March.
    12. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, January.
    13. Thurow, Lester, 1983. "Dangerous Currents: The State of Economics," OUP Catalogue, Oxford University Press, number 9780198771838.
    14. Jochen Hartwig, 2004. "Keynes's multiplier in a two-sectoral framework," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 309-334.
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    1. repec:taf:revpoe:v:29:y:2017:i:3:p:360-375 is not listed on IDEAS
    2. Jochen Hartwig, 2017. "The Comparative Statics of Effective Demand," Review of Political Economy, Taylor & Francis Journals, vol. 29(3), pages 360-375, July.

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    Keywords

    Keynes; Effective demand; D/Z model; Marginal returns to labour;

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