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The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis

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  • Hellwig, Martin

Abstract

The paper studies the relation between real wage rates and employment in an intertemporal model in which expectations of subsequent real wage rates affect equilibrium capital investments and equilibrium interest rates in previous periods. Whether the wage-employment tradeoff is more favourable or less favourable in this model than in the static model with given capital depends on whether there is relatively more substitution in consumption or in production, or, more precisely, whether the elasticity of substitution in production is less than or greater than the inverse of the elasticity of marginal utility in consumption.
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  • Hellwig, Martin, 2004. "The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis," Papers 8959, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:8959
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    References listed on IDEAS

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    1. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    2. Bliss, C. J., 1975. "Capital Theory and the Distribution of Income," Elsevier Monographs, Elsevier, edition 1, number 9780720436044 edited by Bliss, C. J..
    3. Dreze, Jacques H. & Modigliani, Franco, 1981. "The trade-off between real wages and employment in an open economy (Belgium)," European Economic Review, Elsevier, vol. 15(1), pages 1-40.
    4. Kaas Leo & Thadden Leopold von, 2003. "Unemployment, Factor Substitution and Capital Formation," German Economic Review, De Gruyter, vol. 4(4), pages 475-495, December.
    5. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    6. Hellwig, Martin & Irmen, Andreas, 1999. "Wage Growth, Productivity Growth, and the Evolution of Employment," Sonderforschungsbereich 504 Publications 99-86, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    7. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, March.
    8. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Erkki Koskela & Mikko Puhakka, 2006. "Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation," CESifo Working Paper Series 1840, CESifo.
    2. Baccaro, Lucio & Simoni, Marco, 2010. "Organizational determinants of wage moderation," LSE Research Online Documents on Economics 33510, London School of Economics and Political Science, LSE Library.
    3. Koskela, Erkki & Puhakka, Mikko, 2007. "Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations," IZA Discussion Papers 3246, Institute of Labor Economics (IZA).
    4. Heikki Kauppi & Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections," CESifo Working Paper Series 1343, CESifo.

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