The Relation Between Real Wage Rates and Employment: An Intertemporal General-Equilibrium Analysis

Geschäftsstelle, ()
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No 02-30, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: The paper studies the relation between real wage rates and employment in an intertemporal model in which expectations of subsequent real wage rates affect equilibrium capital investments and equilibrium interest rates in previous periods. Whether the wage-employment tradeoff is more favourable or less favourable in this model than in the static model with given capital depends on whether there is relatively more substitution in consumption or in production, or, more precisely, whether the elasticity of substitution in production is less than or greater than the inverse of the elasticity of marginal utility in consumption.

Pages: 31 pages
Date: 2002-03-26
Note: I am grateful to Andreas Irmen for helpful discussions and to the Deutsche Forschungsgemeinschaft for research support.
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