Abstract
This paper develops a theory of stagflation, based on turnover-efficiency-wage theory. In these theories, wages are forward-looking, i.e., set to keep incumbents with the firm. The employed workers apply for better jobs and compete with unemployed applicants. An employed applicant is, however, preferred to an unemployed applicant, or the long-term unemployed, who, with their outdated skills, form an essentially non-competing group. Consider now the case that the monetary authority succeeds in stabilizing the price level permanently. Start from efficiency-wage unemployment equilibrium. The skills of the unemployed will, after a while, become outdated. This reduces the „effective” rate of unemployment and causes the labor market to tighten. Turnover increases, and the former equilibrium is destroyed. The individual firm will raise wages in order to reduce turnover costs. Costs increase, causing prices to also increase. The monetary authority reacts with restrictive policies, and unemployment increases. This leads to a new turnover-efficiency-wage equilibrium, and the process continues. The argument implies that wage inflation emerges after a while at all employment levels. This paper concludes by discussing some of the consequent policy implications.
Item Type: | Book Section |
---|---|
Form of publication: | Publisher's Version |
Keywords: | stagflation, efficiency wages, turnover, natural rate, business cycles, stabilization policy, indexation, macroeconomic externalities |
Faculties: | Economics > Chairs > Chair of Institutional Economics (closed) Economics |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | E10, E12, E31, E58, E64, J5 |
URN: | urn:nbn:de:bvb:19-epub-11090-3 |
Language: | English |
Item ID: | 11090 |
Date Deposited: | 24. Nov 2009, 17:50 |
Last Modified: | 04. Nov 2020, 12:52 |
References: | Bellmann, L. and Emmerich, K. (1992). Union bargaining, wage differentials and employment. Labour, 6(2):19–30. Bundesanzeiger (1989). Richtlinien zur förderung von maßnahmen für besonders beeinträchtigte langzeitarbeitslose und schwerstvermittelbare arbeitslose. Bundesanzeiger. Reprinted in Arbeitsförderungsgestz, Textausgabe, Anlage M, Bundesanstalf für Arbeit 1993). Campbell, C. M. I. (1993). The relative impact of the level and the change in the wage on quits: Some empirical evidence. Technical report, Department of Economics, Colgate University, Hamilton N.Y. 13346, USA. Coe, D. T. (1990). Insider-outsider influences on industry wages. evidence from fourteen industrialized countries. In Franz, W., editor, Hysteresis effects in economic models, pages 55–75, Heidelberg. Physica. Crafts, N. F. R. (1989). Long-term unemployment and the wage equation in britain, 1925-1939. Economica, 56(222):247–54. Duesenberry, J. (1949). Income, saving, and the theory of consumer behavior. Harvard Univ Pr. Fehr, E. (1986). A theory of involuntary equilibrium unemployment. Journal of Institutional and Theoretical Economics, 142(2):405–30. Fehr, E., Gächter, S., and Kirchsteiger, G. (1993). Reciprocity forces versus competitive forces: The impact of entrance fees in an experimental efficiency wage market. Technical Report 8306, University of Vienn, Department of Economics, Hohenstaufengasse 9, 1010 Vienna, Austria. Frank, R. (1984). Are workers paid their marginal products? The American Economic Review, 74(4):549–71. Funke, M. (1991). Das hysteresis-phänomen. Zeitschrift für Wirtschafts- und Sozialwissenschaften, 111(4):527–51. Gahlen, B. and Ramser, H. (1987). Effizienzlohn, lohndrift und beschäftigung. In Bombach, G., Gahlen, B., and Ott, A. E., editors, Arbeitsmärkte und Beschäftigung. Fakten, Analysen, Perspektiven, pages 129–60. J. C. B. Mohr, Tübingen. Graafland, J. (1991). On the causes of hysteresis in long-term unemployment in the netherlands. Oxford Bulletin of Economics and Statistics, 53(2):155–70. Hansen, G. (1991). Hysteresis und arbeitslosigkeit. Jahrb ücher für Nationalökonomie und Statistik, 208(3):272–98. Meade, J. E. (1993). The meaning of ’internal balance’. American Economic Review, 83(6):3–9. Möller, J. and Völker, R. (1991). Lohnbildung und hysteresis: Empirische Übnerprüfung eines insider-outsider modells für die bundesrepublik deutschland. Zeitschrift für Wirtschafts-und Sozialwissenschaften, 111:401–24. Oswald, A. (1993). Efficient contracts are on the labour demand curve: Theory and facts. Labour Economics, 1(1):85–113. Salop, S. C. (1979). A model of the natural rate of unemployment. American Economic Review, 69(1):117–25. Schlicht, E. (1978). Labour turnover, wage structure, and natural unemployment. Journal of Institutional and Theoretical Economics (Zeitschrift für die gesamte Staatswissenschaft), 134(2):337–64. Schlicht, E. (1979). The transition to labour management as a gestalt switch. Gestalt Theory, 1:54–67. Schlicht, E. (1981). Training costs and wage differentials in the theory of job competition. Discussion papers in economics, University of Munich, Department of Economics. Schlicht, E. (1983). Die Therapie liegt im argen. Wirtschaftsdienst, 2:63–65. Schlicht, E. (1994). Inefficient job rents in a dual labour market. Technical report, Volkswirtschaftliches Institut, Ludwig-Maximilians-Universität, Schackstr. 4, 82346 München, Germany. Shapiro, C. and Stiglitz, J. (1984). Equilibrium unemployment as a worker discipline device. American Economic Review, 74(3):433–44. Solow, R. (1990). The labor market as a social institution. Blackwell Publishers. Stiglitz, J. E. (1974). Alternative theories of wage determination and unemployment in ldc’s: The labor turnover model. The Quarterly Journal of Economics, 88(2):194–227. Stiglitz, J. E. (1987). The causes and consequences of the dependence of quality on price. Journal of Economic Literature, 25(1):1–48. Thurow, L. (1977). Generating inequality. Basic Books New York. Vogt, W. (1994). Akzelerierende inflation oder steigende arbeitslosigkeit? University of Regensburg. Weizman, M. (1984). The Share Economy: Conquering Stagflation. Boston, Mass.: Harvard University Press. Williamson, O. E., Wachter, M. L., and Harris, J. E. (1975). Understanding the employment relation: The analysis of idiosyncratic exchange. Bell Journal of Economics, 6(1):250–78. Yellen, J. L. (1984). Efficiency wage models of unemployment. American Economic Review, 74(2):200–205 |