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Wages and Unemployment in the United States: Reviving a Wage Gap Explanation

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  • Sebastián Claro

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

The unemployment path in the United States in the last forty years can be significantly explained by the evolution of excessive real wages. An estimation of the evolution of market-clearing wages is presented and its difference with observed average wages - the wage gap - is shown to track significantly the path of the unemployment rate. Aside from emphasizing unemployment as an involuntary phenomenon, the neoclassical nature of the labor demand function used casts doubts with respect to effectiveness of aggregate demand policies, contrasting with some natural rate theories whose labor demand side provides room for extensive demand shocks. In this context, a fall in real wages appears as the key mechanism to generate a rise in aggregate employment.

Suggested Citation

  • Sebastián Claro, 2003. "Wages and Unemployment in the United States: Reviving a Wage Gap Explanation," Documentos de Trabajo 235, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:235
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-235.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sebastián Claro, 2002. "Manufacturing Employment Cycle," Documentos de Trabajo 212, Instituto de Economia. Pontificia Universidad Católica de Chile..

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    More about this item

    Keywords

    Unemployment; wage gap; labor demand;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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