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Author: | Jullien, B. Picard, P. |
Title: | A classical model of involuntary unemployment: Efficiency wages and macroeconomic policy |
Journal: | Journal of Economic Theory
1998 : FEB, VOL. 78:2, p. 263-285 |
Index terms: | PAY UNEMPLOYMENT MACROECONOMICS MODELS |
Language: | eng |
Abstract: | A two period monetary overlapping generations model with efficiency wages is constructed, in which the workers' effort is unobservable and wage contracts verify an incentive compatibility constraint to prevent shirking. Its dynamics is similar to the one of a market clearing neoclassical model driven by intertemporal substitution effects, in which the labour supply curve would be replaced by a nonshirking condition. But normative properties of macroeconomic policies differ. In particular, employment subsidies are welfare improving and the golden rule on real interest rates may not hold. Conditions for a transitory increase in public consumption to be welfare improving are also obtained. |
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