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Efficiency Wages, Unemployment and Macroeconomic Policy

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  • Jim Malley
  • Hassan Molana

Abstract

We provide empirical evidence from a number of European countries, which shows that unemployment and output are positively related when unemployment is low and inversely related when unemployment is high. We then construct a stylised macro-model with goods and labour market imperfections to show that the economy can rationally operate at an inefficient equilibrium in the neighbourhood of which the relationship between output and unemployment is positive. Our results suggest that circumstances exist in which market imperfections pose serious obstacles to the smooth working of expansionary and/or stabilization policies whose final aim is to improve welfare.

Suggested Citation

  • Jim Malley & Hassan Molana, 2002. "Efficiency Wages, Unemployment and Macroeconomic Policy," Working Papers 2002_3, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2002_3
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Efficiency wages; effort supply; monopolistic competition; multiple equilibria; stability; fiscal multiplier;
    All these keywords.

    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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