Wage Growth, Productivity Growth, and the Evolution of Employment

Martin Hellwig and Andreas Irmen

No 99-86, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivity grows at the same rate as wages, the interest rate is below the laissez-faire level, and so ist the common growth rate of consumption, demand, and output. In these steady-state equilibria employment contracts at a constant rate equal to the difference between the growth rates of productivity and output. This contrasts with the view that equality of wage growth and productivity growth is a condition for constant employment.

Pages: 44 pages
Date: 1999-11-05
Note: Financial Support from the Deutsche Forschungsgemeinschaft, under the program ''Industrieökonomik und Inputmärkte'' is gratefully acknowledged.#
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Working Paper: Wage Growth, Productivity Growth, and the Evolution of Employment (2001)
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