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Wages, Employment and Futures Markets

Author

Listed:
  • Ariane Breitfelder

    (Department of Economics, University of Munich)

  • Udo Broll

    (Department of Economics, Dresden University of Technology)

  • Kit Pong Wong

    (School of Economics and Finance, University of Hong Kong)

Abstract

This paper places the competitive firm under output price uncertainty in a standard efficiency wage model, wherein the work effort of labor depends on the wage rate set by the firm. Irrespective of the availability of a commodity futures market, we show that the Solow condition holds in that the equilibrium effort-wage elasticity is unity. The optimal wage rate is preference-free and independent of the underlying output price uncertainty under the efficiency wage hypothesis. Furthermore, we show that the introduction of the commodity futures market induces the firm to hire more labor and thereby produce more output if the firm is sufficiently risk averse.

Suggested Citation

  • Ariane Breitfelder & Udo Broll & Kit Pong Wong, 2008. "Wages, Employment and Futures Markets," Finnish Economic Papers, Finnish Economic Association, vol. 21(2), pages 118-123, Autumn.
    • Handle: RePEc:fep:journl:v:21:y:2008:i:2:p:118-123
    as

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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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