Efficiency Wages

Martin Zagler

Chapter 2 in Growth and Employment in Europe, 2004, pp 25-36 from Palgrave Macmillan

Abstract: Abstract This chapter establishes a theoretical relation between the level of unemployment and the economic rate of growth. It is posited that in a model with a monopolistically competitive manufacturing sector and a competitive innovation sector, both of which pay efficiency wages, the equilibrium unemployment rate — the Nawru — exhibits an unambiguously negative impact on the long-run growth performance, because it reduces the innovative capacity of the economy. Only if efficiency levels are different across sectors can a causal relation from the growth rate to the level of unemployment be established, since a lower level of innovation shifts the burden of inducing efficiency towards the manufacturing sector, thus fostering unemployment.

Keywords: Unemployment Rate; Total Factor Productivity; Average Wage; Wage Premia; Relative Wage (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-50632-9_2

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DOI: 10.1057/9780230506329_2

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