Wage, Productivity and Unemployment Microeconomics Theory and Macroeconomic Data

Weshah Razzak

MPRA Paper from University Library of Munich, Germany

Abstract: We confront microeconomic theory with macroeconomic data. Unemployment results from two main micro-level decisions of workers and firms. Most of the efficiency wage and bargaining theories predict that over the business cycle, unemployment falls below its natural rate when the worker’s real wage exceeds the reservation wage. However, these theories have weak empirical support. Firm’s decision predicts that when the worker’s real wage exceeds the marginal product of labor, unemployment increases above its natural rate. Accounting for this microeconomic decision helps explain almost all the fluctuations of U.S. unemployment.

Keywords: Wage; productivity and unemployment (search for similar items in EconPapers)
JEL-codes: D21 E24 (search for similar items in EconPapers)
Date: 2014-11-01
New Economics Papers: this item is included in nep-lab and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:61105

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