| Author: | Woglom, G. |
| Title: | Nominal disturbances, wage flexibility and shifting resources in a two sector economy |
| Journal: | Economic Journal
1991 : SEP, VOL. 101:408, p. 1200-1213 |
| Index terms: | MACROECONOMIC MODELS UNEMPLOYMENT EUROPE FLEXIBILITY PAY PRICES SHARES |
| Language: | eng |
| Abstract: | The recent behaviour of European unemployment rates sparked considerable interest in the connection between wage flexibility and unemployment. A theoretical model is developed from which the effects of a nominal shock on employment and relative prices can be analysed. In the model the price in the share sector falls following a decrease in demand in order to maintain aggregate full employment. The presence of the share sector only stabilises employment within the wage sector, however, when intersectoral demand is price inelastic. Next, the theoretical model is simulated for finite reductions in aggregate nominal demand. Resource shifting is less when demand is price inelastic, but changes in workers' compensation between sectors are greater. |
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