Working Paper: CEPR ID: DP2927
Authors: Martin F. Hellwig; Andreas Irmen
Abstract: This Paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivitygrows at the same rate as wages, the real interest rate is below the laissez-faire level, and so is the common growth rate of consumption, demand, and output. In these steady-state equilibria employment contracts at a constant rate equal to the difference between the growth rates of productivity and output. This contrasts with the view that equality of wage growth and productivity growth is a condition for constant employment.
Keywords: employment; endogenous technical change; perfect competition; productivity growth; wages
JEL Codes: D24; D92; E20; E24; J30; O30; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage growth (J31) | productivity growth (O49) |
| productivity growth (O49) | employment evolution (J68) |
| wage growth (J31) | employment evolution (J68) |
| real wage growth > laissez-faire levels (J38) | lower real interest rate (E43) |
| lower real interest rate (E43) | reduced growth rates of consumption demand and output (F62) |
| productivity growth = wage growth (O49) | constant employment (J63) |