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Efficiency-wage Hypothesis and the Operational Production Pattern

Author

Listed:
  • Carolin V. Schürg

    () (Justus Liebig University, Giessen)

  • Nadeem Naqvi

    () (Justus Liebig University, Giessen)

Abstract

An economy’s production set is the collection of all net output vectors that the economy is capable of producing with a given technology and fixed quantities of primary factors of production. The boundary of this set is called the production possibility frontier or PPF. We show that, if the efficiency-wage hypothesis holds, a country’s PPF, though conceptually valid, is an operationally irrelevant concept, because the economy never operates on the PPF, which is a view that ought to be appreciated in light of persistent unemployment in the new structure of economies of the post-21st-Century-crisis world.

Suggested Citation

  • Carolin V. Schürg & Nadeem Naqvi, 2011. "Efficiency-wage Hypothesis and the Operational Production Pattern," MAGKS Papers on Economics 201146, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201146
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/46-2011_naqvi.pdf
    File Function: First version, 2011
    Download Restriction: no

    References listed on IDEAS

    as
    1. Egbert, Henrik & Naqvi, Nadeem, 2011. "Market-dependent production set," MPRA Paper 33829, University Library of Munich, Germany.
    2. Summers, Lawrence H, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 383-388, May.
    3. Alan Blinder, 2010. "Teaching Macro Principles after the Financial Crisis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 385-390, September.
    4. Batra, Raveendra N. & Naqvi, Nadeem, 1989. "Non-traded and intermediate goods and the theory of protection," European Economic Review, Elsevier, vol. 33(4), pages 721-735, April.
    5. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    6. J. Peter Neary, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 551-570.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    general equilibrium; production set; production possibility frontier; efficiency wage; economic policy; labor market;

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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