Where do real wage policies lead Belgium: a general equilibrium analysis

Simon Erlich, Victor Ginsburgh and Ludo Van der Heyden

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: This paper is concerned with an application to Belgium of a two-period general equilibrium model; in the short run, market imperfections (like downward rigidities on real wages) may generate a temporary disequilibrium; in the long run, flexible prices and substitution between factors restore equilibrium on all markets. The ‘dynamic’ structure is thus actually meant to represent a short-run disequilibrium embedded in a long-run equilibrium, and only the short-run results are of real interest, but with a theoretically sound long-run analysis as a background. We show that in the short run, real wage policies can only do very little to alleviate the burden of unemployment. They however have strong effects in the medium and the long run, provided that they are supported by fairly large capacity increases. © 1987, All rights reserved.

Date: 1987-10
Note: SCOPUS: ar.j
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Published in: European Economic Review (1987) v.31 n° 7,p.1369-1383

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Working Paper: Where do real wage policies lead Belgium? A general equilibrium analysis (1987)
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