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Wage Flexibility and Employment Stability

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  • Flemming, J S

Abstract

How is the variance of employment affected by the speed of response of money wages to labor market disequilibrium? This is considered in a model which, apart from partial adjustment of the wage, is neoclassical, including rational expectations. Output is determined by demand which, like supply, is subject to shocks which affect employment. A faster wage response increases the impact of shocks on employment. In some cases this outweighs the effect of speedier equilibration, supporting an assertion of Keynes's. Since the nominal wage that is given in the short-run monetary policy is important, several variants are considered. Copyright 1987 by Royal Economic Society.

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  • Flemming, J S, 1987. "Wage Flexibility and Employment Stability," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 161-174, March.
    • Handle: RePEc:oup:oxecpp:v:39:y:1987:i:1:p:161-74
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    Cited by:

    1. Ichiro Takahashi & Isamu Okada, 2020. "An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(4), pages 953-998, October.
    2. Malik, Hamza & Scarth, William, 2005. "Is Price Flexibility De-Stabilizing? A Reconsideration," MPRA Paper 457, University Library of Munich, Germany, revised Apr 2006.
    3. Ichiro Takahashi, 2021. "An Artificial Wicksell—Keynes Macroeconomy," Springer Books, Springer, number 978-981-16-6839-5, January.
    4. Ichiro Takahashi, 2021. "Market Mechanism: Stabilizing or Destabilizing?," Springer Books, in: An Artificial Wicksell—Keynes Macroeconomy, chapter 0, pages 1-20, Springer.

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