Efficiency-wage Hypothesis and the Operational Production Pattern

Carolin Carolin V. Schürg () and Nadeem Naqvi
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Carolin Carolin V. Schürg: Justus Liebig University, Giessen

No 201146, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

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-Century-crisis world.

Keywords: general equilibrium; production set; production possibility frontier; efficiency wage; economic policy; labor market (search for similar items in EconPapers)
JEL-codes: A20 D50 E23 F11 J23 J31 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2011
New Economics Papers: this item is included in nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201146

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