Unemployment and Growth in the Long Run: An Efficiency-Wage Model with Optimal Savings

Richard A. Breche, Zhiqi Chen and Ehsan Choudhri ()
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Richard A. Breche: Carleton University, Canada
Authors registered in the RePEc Author Service: Richard A. Brecher

International Economic Review, 2002, vol. 43, issue 3, 875-894

Abstract: An efficiency-wage model of steady-state equilibrium with labor-augmenting technical progress is developed to explore the long-run relationship between unemployment and growth. The rate of productivity growth is either specified exogenously or determined endogenously. In both cases, we preserve key results of the Shapiro--Stiglitz efficiency-wage analysis without growth. Our model, however, also yields some striking new results. For instance, an exogenous increase in the growth rate may raise the rate of efficiency-wage unemployment, and a once-for-all rise in the labor force may reduce the unemployment rate in the endogenous-growth case. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Date: 2002
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