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The Relationship between Output and Unemployment with Efficiency Wages

  • Jim Malley
  • Hassan Molana

    ()

We construct a stylised model of the supply side with goods and labour market imperfections to show that an economy can rationally operate at an inefficient, or ‘low-effort’, state in which the relationship between output and unemployment is positive. We examine data from the G7 countries over 1960-2001 and find that only German data strongly favour a persistent negative relationship between the level of output and rate of unemployment. The consequence of this is that circumstances exist in which market imperfections could pose serious obstacles to the smooth working of expansionary and/or stabilization policies and a positive demand shock might have adverse effects on employment.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/cp0607.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0607.

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Date of creation: Sep 2006
Date of revision:
Handle: RePEc:san:cdmacp:0607
Contact details of provider: Postal: Department of Economics, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
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  1. Jim Malley & Hassan Molana, 2000. "Monopolistic Competition, Efficiency Wages and Perverse Effects of Demand Shock," Working Papers 2000_20, Business School - Economics, University of Glasgow, revised Feb 2001.
  2. Disney, Richard F & Haskel, Jonathan & Heden, Ylva, 2000. "Restructuring And Productivity Growth In UK Manufacturing," CEPR Discussion Papers 2463, C.E.P.R. Discussion Papers.
  3. Alison L. Booth & Yu-Fu Chen & Gylfi Zoega, 2002. "Hiring and Firing: A Tale of Two Thresholds," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 217-248, Part.
  4. STROBL, Eric & WALSH, Frank, 2003. "Estimating the shirking model with variable effort," CORE Discussion Papers 2003075, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  7. Robert J. Gordon, 1995. "Is There a Tradeoff between Unemployment and Productivity Growth?," NBER Working Papers 5081, National Bureau of Economic Research, Inc.
  8. Malley, Jim & Moutos, Thomas, 2001. " Capital Accumulation and Unemployment: A Tale of Two "Continents."," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 79-99, March.
  9. Carlin, Wendy & Soskice, David, 2005. "Macroeconomics: Imperfections, Institutions, and Policies," OUP Catalogue, Oxford University Press, number 9780198776222, March.
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