Wages and the Demand for Labor in Unemployment Equilibria

Paavo Peisa
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Paavo Peisa: University of Helsinki

A chapter in Topics in Disequilibrium Economics, 1978, pp 81-92 from Palgrave Macmillan

Abstract: Abstract This paper analyzes the demand for labor under conditions of Keynesian underemployment, where firms cannot sell as much as they wish at given market prices due to a lack of effective demand for output. It is argued that if the inventory holding motive is operative, labor will be demanded until the value of its marginal product is equal to the wage rate. Thus a ceteris paribus reduction in wages leads to a decrease in unemployment, contrary to the conclusion of the Barro-Grossman model.

Keywords: Marginal Cost; Wage Rate; Real Wage; Price Equilibrium; Marginal Product (search for similar items in EconPapers)
Date: 1978
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-03917-3_5

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DOI: 10.1007/978-1-349-03917-3_5

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