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Wages, Employment and Futures Markets

Ariane Breitfelder (), Udo Broll () and Kit Pong Wong ()
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Ariane Breitfelder: Department of Economics, University of Munich
Udo Broll: Department of Economics, Dresden University of Technology
Kit Pong Wong: School of Economics and Finance, University of Hong Kong

Finnish Economic Papers, 2008, vol. 21, issue 2, 118-123

Abstract: This paper places the competitive firm under output price uncertainty in a standard efficiency wage model, wherein the work effort of labor depends on the wage rate set by the firm. Irrespective of the availability of a commodity futures market, we show that the Solow condition holds in that the equilibrium effort-wage elasticity is unity. The optimal wage rate is preference-free and independent of the underlying output price uncertainty under the efficiency wage hypothesis. Furthermore, we show that the introduction of the commodity futures market induces the firm to hire more labor and thereby produce more output if the firm is sufficiently risk averse.

JEL-codes: D21 J31 (search for similar items in EconPapers)
Date: 2008
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