Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model

Yasuhito Tanaka

Studia Universitatis Babeș-Bolyai Oeconomica, 2022, vol. 67, issue 1, 11-26

Abstract: We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. When there exists involuntary unemploymnet, the nominal wage rate may decline. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy.

Keywords: involuntary unemployment; monopolistic competition; wage rate decline; real balance effect (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/subboec-2022-0002 (text/html)

Related works:
Working Paper: Involuntary unemployment under ongoing nominal wage rate decline in overlapping generations model (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:subboe:v:67:y:2022:i:1:p:11-26:n:5

DOI: 10.2478/subboec-2022-0002

Access Statistics for this article

Studia Universitatis Babeș-Bolyai Oeconomica is currently edited by Dumitru Matis

More articles in Studia Universitatis Babeș-Bolyai Oeconomica from Sciendo
Bibliographic data for series maintained by Peter Golla ().