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The Relationship between Output and Unemployment with Efficiency Wages

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  • Jim Malley
  • Hassan Molana

Abstract

. We construct a stylised model of the supply side with goods and labour market imperfections to show that an economy can rationally operate at a 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 stabilisation policies and a positive demand shock might have adverse effects on employment.

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  • Jim Malley & Hassan Molana, 2007. "The Relationship between Output and Unemployment with Efficiency Wages," German Economic Review, Verein für Socialpolitik, vol. 8(4), pages 561-577, November.
    • Handle: RePEc:bla:germec:v:8:y:2007:i:4:p:561-577
    DOI: 10.1111/j.1468-0475.2007.00418.x
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    References listed on IDEAS

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    Cited by:

    1. alamro, Hassan & Al-dalaien, Qusay, 2014. "Modeling the relationship between GDP and unemployment for Okun’s law specific to Jordan," MPRA Paper 55302, University Library of Munich, Germany.
    2. Benos, Nikos & Stavrakoudis, Athanassios, 2022. "Okun's law: Copula-based evidence from G7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 478-491.
    3. Kristina Matuzeviciute & Mindaugas Butkus & Akvile Karaliute, 2017. "Do Technological Innovations Affect Unemployment? Some Empirical Evidence from European Countries," Economies, MDPI, vol. 5(4), pages 1-19, December.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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