Abstract
We construct a stylised macro-model with goods and labour market imperfections to show that the economy can rationally operate at an inefficient, or ‘low-effort’, equilibrium in the neighbourhood of which the relationship between output and unemployment is, in contrast to Okun’s Law, positive. We use the Kalman-filter approach allowing for trends, cyclical changes and breaks to examine data from the G7 countries over period 1960-2001, and find that only German data strongly favour a persistent negative relationship between the level of output and rate of unemployment. Our results suggest that circumstances exist in which market imperfections pose serious obstacles to the smooth working of expansionary and/or stabilization policies.
| Original language | English |
|---|---|
| Publisher | University of Dundee |
| Publication status | Published - 2002 |
Publication series
| Name | Dundee Discussion Papers in Economics |
|---|---|
| Publisher | University of Dundee |
| No. | 126 |
| ISSN (Print) | 1473-236X |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth
Keywords
- Efficiency wages
- Effort supply
- Monopolistic competition
- Multiple equilibria
- Fiscal multiplier
- Kalman filter
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