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Stimulation of Employment in Neo-Classical Models

Author

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  • Michael Malakellis
  • Matthew Peter

Abstract

This paper explores the possibility of a Keynesian-like employment response in multi-sectoral neo-classical models such as the ORANI model of the Australian economy. One of the more controversial applications of ORANI has been its use in designing a macroeconomic policy package which stimulates employment without worsening the external account. This package involves restraining real wages while simultaneously increasing aggregate demand. As expected of a model with a neo-classical structure, real wage restraint boosts employment in ORANI. However, employment responds positively to an expansion in aggregate demand -- a result expected of a Keynesian rather than a neo-classical model. The conclusion is that relative price movements and compositional effects, which are entirely consistent with a neo-classical structure, explain the positive relationship between employment growth and aggregate demand in ORANI and kindred models.)

Suggested Citation

  • Michael Malakellis & Matthew Peter, 1991. "Stimulation of Employment in Neo-Classical Models," Centre of Policy Studies/IMPACT Centre Working Papers ip-49, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:ip-49
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    References listed on IDEAS

    as
    1. W. M. Corden & P. B. Dixon, 1980. "A Tax‐Wage Bargain in Australia:Is a Free Lunch Possible?," The Economic Record, The Economic Society of Australia, vol. 56(154), pages 209-221, September.
    2. A. R. Pagan & J. H. Shannon, 1987. "How Reliable are ORANI Conclusions?," The Economic Record, The Economic Society of Australia, vol. 63(1), pages 33-45, March.
    3. Pearson, K. R., 1988. "Automating the computation of solutions of large economic models," Economic Modelling, Elsevier, vol. 5(4), pages 385-395, October.
    4. repec:bla:ecorec:v:63:y:1987:i:180:p:33-45 is not listed on IDEAS
    5. repec:bla:ecorec:v:56:y:1980:i:154:p:209-21 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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