DP2927 Wage Growth, Productivity Growth, and the Evolution of Employment
|Author(s):||Martin F Hellwig, Andreas Irmen|
|Publication Date:||August 2001|
|Keyword(s):||employment, endogenous technical change, perfect competition, productivity growth, wages|
|JEL(s):||D24, D92, E20, E24, J30, O30, O40|
|Programme Areas:||International Macroeconomics, Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2927|
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 real interest rate is below the laissez-faire level, and so is 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.