Working Paper: NBER ID: w2651
Authors: Bruce Greenwald; Joseph E. Stiglitz
Abstract: This paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained Pareto efficient. Wages are not set at Pareto efficient levels, nor is the level of employment (unemployment) Pareto efficient. We identify the nature of the biases and the welfare improving government interventions.
Keywords: Pareto Inefficiency; Market Economies; Search Costs; Efficiency Wages
JEL Codes: D62; E24; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Search costs (G19) | Unemployment (J64) |
| Wages (J31) | Productivity (O49) |
| Wages (J31) | Employment Levels (J23) |
| Government Interventions (H53) | Welfare (I38) |
| Search costs (G19) | Wages not set at Pareto efficient levels (J31) |
| Wages affecting Productivity (J31) | Wages exceeding market-clearing levels (J31) |