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Jobless Recovering and Equilibrium Involuntary Unemployment with a Simple Efficiency Wage Model

Author

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  • Jinpeng Ma

    (Economics-Camden)

Abstract

The U.S. economy had experienced the "jobless recovering" after the 1990-1991 and 2001 recessions, which has been constantly puzzling the economists, market analysts, and policymakers. This paper uses a simple hiring game in an efficiency wage model framework to resolve that puzzle. Our efficiency wage model emphasizes the importance of the local unemployment rate, which is endogenously determined by firms' hiring decision at a symmetric Nash equilibrium. Our model has a new feature such that nonzero steady involuntary unemployment at equilibrium may coexist with an efficiency wage that stays below the market-clearing wage. Moreover, we show how it is possible to use our model to study income inequality as a result of skill-biased technical change, inter-industry wage differentials, and skill wage premiums. We also demonstrate how it is possible to derive the wage curve (Blanchflower and Oswald (1994)) as an equilibrium locus of our model.

Suggested Citation

  • Jinpeng Ma, 2004. "Jobless Recovering and Equilibrium Involuntary Unemployment with a Simple Efficiency Wage Model," Departmental Working Papers 200404, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200404
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    References listed on IDEAS

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    Cited by:

    1. Kevin x.d. Huang & Jie Chen & Zhe Li & Jianfei Sun, 2014. "Financial Conditions and Slow Recoveries," Vanderbilt University Department of Economics Working Papers 14-00004, Vanderbilt University Department of Economics.
    2. David G. Blanchflower & Andrew J. Oswald, 2005. "The Wage Curve Reloaded," NBER Working Papers 11338, National Bureau of Economic Research, Inc.
    3. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, August.
    4. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

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    Keywords

    Jobless recovering;

    JEL classification:

    • D0 - Microeconomics - - General

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