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Wage Growth, Productivity Growth, and the Evolution of Employment

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  • Hellwig, Martin

    () (Sonderforschungsbereich 504)

  • Irmen, Andreas

    () (Fakultät für Volkswirtschaftslehre)

Abstract

This paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivity grows at the same rate as wages, the interest rate is below the laissez-faire level, and so ist the common growth rate of consumption, demand, and output. In these steady-state equilibria employment contracts at a constant rate equal to the difference between the growth rates of productivity and output. This contrasts with the view that equality of wage growth and productivity growth is a condition for constant employment.

Suggested Citation

  • 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.
  • Handle: RePEc:xrs:sfbmaa:99-86 Note: Financial Support from the Deutsche Forschungsgemeinschaft, under the program ''Industrieökonomik und Inputmärkte'' is gratefully acknowledged.#
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    3. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-497, June.
    4. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    5. Byoung Heon Jun, 1989. "Non-cooperative Bargaining and Union Formation," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 59-76.
    6. Ngo Van Long & Antoine Soubeyran, 1999. "Input Price Discrimination, Access Pricing, and Bypass," CIRANO Working Papers 99s-23, CIRANO.
    7. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    8. Marcel Boyer, 1999. "Les Expos, l'OSM, les universités, les hôpitaux : Le coût d'un déficit de 400 000 emplois au Québec = Expos, Montreal Symphony Orchestra, Universities, Hospitals: The Cost of a 400,000-Job Shortfall i," CIRANO Papers 99c-01, CIRANO.
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    Cited by:

    1. Lutz G. Arnold, 2006. "Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?," German Economic Review, Verein für Socialpolitik, vol. 7, pages 87-112, February.
    2. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute for the Study of Labor (IZA).
    3. Martin Hellwig, 2004. "The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis," German Economic Review, Verein für Socialpolitik, vol. 5(3), pages 263-295, August.
    4. Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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