Working Paper: CEPR ID: DP844
Authors: Assar Lindbeck; Dennis J. Snower
Abstract: In traditional Keynesian and neoclassical models, the transmission of product demand changes to the labour market generally involves wage-price sluggishness or counter-cyclical real wage movements. In practice, however, real wages are often acyclical or procyclical, and wages and prices are flexible in the longer run. This paper examines the main channels whereby product demand can affect employment under these conditions. The analysis suggests that the longer-term effectiveness of demand management policies depends significantly on the availability of a limited number of supply-side transmission channels.
Keywords: transmission mechanisms; demand management; policy; imperfect competition; employment
JEL Codes: E3; E6; J3; J4; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Product demand changes (J23) | Real wages (J31) |
| Real wages (J31) | Employment (J68) |
| Product demand changes (J23) | Employment (J68) |
| Sluggish prices (P22) | Labor demand (J23) |
| Demand management policies (L97) | Employment (J68) |