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« NEGISHI-SOLOW EFFICIENCY WAGES, UNEMPLOYMENT INSURANCE AND STOCHASTIC ENDOGENOUS KEYNESIAN UNEMPLOYMENT BUSINESS CYCLES » Jean-Michel GRANDMONT (ICEF, VENEZIA and CREST-GRECSTA, PARIS) .
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« NEGISHI-SOLOW EFFICIENCY WAGES, UNEMPLOYMENT INSURANCE AND STOCHASTIC ENDOGENOUS KEYNESIAN UNEMPLOYMENT BUSINESS CYCLES »
(ICEF, VENEZIA and CREST-GRECSTA, PARIS)
The Association of Public Economic Theory (APET), and the University of Exeter Business School Workshop in honour of Cuong LE VAN
University of Exeter, September 9-11, 2011
− Shirking and Efficiency Wages so as to induce workers to make effort level x requestedinwage contract (w, x) set by firms (Negishi (1979), Solow (1979), Shapiro and Stiglitz (1984), Coimbra (1999) Nakajima (2006), Aloi and Lloyd-Braga (2006), …)
Raising Unemployment insurance may be good on average for employment and welfare, if relative risk aversion decreases not too fast with income (Grandmont (2008))
Phillips curve ? Real wage and employment are both procyclicalwhen effort is mildly procyclical, which requires :
− Specific heteroschedastic properties of the process of stochastic (sunspot) shocks to employed workers consumption, i.e. elasticity of but not too large
− Decreasing and significantly convex relative risk aversion
with “efficient” labour
Firms choose efficiency wage contract so as to minimize real wage per unit of effort
under workers’ incentive constraint
3. STOCHASTIC ENDOGENOUS KEYNESIAN UNEMPLOYMENT BUSINESS CYCLES
- If is sequence of i.i.d. r.v., is constant over time Real wage is anticyclical
(If DDRA, must decrease
CONCLUSIONS : Under above assumptions, real wage and employment both procyclical (effort mildly procyclical) if elasticity of with respect to , significant but not too large in absolute value
Qualitative conclusions likely to stand generally in models of unemployment with efficiency wages :
In specific model considered here, unpleasant cyclical features, as in many cash-in-advance models :
Promising avenue but much more complex (raising wage at t incrases current consumption but decreases future consumption more complex workers intertemporal incentive’s, higher dimensional dynamics ?)