DP844 How are Product Demand Changes Transmitted to the Labour Market?

Author(s): Assar Lindbeck, Dennis J. Snower
Publication Date: September 1993
Keyword(s): Demand Management Policy, Employment, Imperfect Competition, Transmission Mechanisms
JEL(s): E3, E6, J3, J4, L1
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=844

In traditional Keynesian and neoclassical models, the transmission of product demand changes to the labour market generally involves wage-price sluggishness or counter-cyclical real wage movements. In practice, however, real wages are often acyclical or procyclical, and wages and prices are flexible in the longer run. This paper examines the main channels whereby product demand can affect employment under these conditions. The analysis suggests that the longer-term effectiveness of demand management policies depends significantly on the availability of a limited number of supply-side transmission channels.