Efficiency-wage Hypothesis and the Operational Production Pattern

Brian W. Bresnahan, Nadeem Naqvi and Carolin Schürg

International Journal of Finance, Insurance and Risk Management, 2012, vol. 2, issue 3, 244

Abstract: An economy’s production set is the collection of all net output vectors that the economy is capable of producing with a given technology and fixed quantities of primary factors of production. The boundary of this set is called the production possibility frontier or PPF. We show that, if the efficiency-wage hypothesis holds, a country’s PPF, though conceptually valid, is an operationally irrelevant concept, because the economy never operates on the PPF, which is a view that ought to be appreciated in light of persistent unemployment in the new structure of economies of the post-21st-Centurycrisis world.

Keywords: general equilibrium; production set; production possibility frontier; efficiency wage; economic policy; labor market; factors of production (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijfirm:v:2:y:2012:i:3:p:244

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