INVOLUNTARY UNEMPLOYMENT UNDER ONGOING NOMINAL WAGE RATE DECLINE IN OVERLAPPING GENERATIONS MODEL
DOI:
https://doi.org/10.2478/subboec-2022-0002Keywords:
involuntary unemployment, monopolistic competition, wage rate decline, real balance effectAbstract
We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. When there exists involuntary unemploymnet, the nominal wage rate may decline. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy.
JEL classifications: E12, E24, E31
References
Hansen, G . D. ( 1985) Indivisible labor and business cycle, Journal of Monetary Economics, 16, 309–327.
Kalecki, M. (1944) “The classical stationary state” A comment, Economic Journal, 54, 131–132.
Lavoie, M. (2001) Efficiency wages in Kaleckian models of employment, Journal of Post Keynesian Economics, 23, 449–464.
McDonald, I. M., Solow, R. M. (1981) Wage bargaining and employment. American Economic Review, 71, 896–908.
Otaki, M. (2007) The dynamically extended Keynesian cross and the welfare-improving fiscal policy, Economics Letters, 96, 23–29.
Otaki, M. (2009) A welfare economics foundation for the full-employment policy, Economics Letters, 102, 1–3.
Otaki, M. (2012) The aggregation problem in the employment theory: The representative individual model or individual employees model?, Theoretical Economics Letters, 2, 530–533. (https://www.scirp.org/journal/paperinformation.aspx?paperid=25920)
Otaki, M. (2015) Keynsian Economics and Price Theory: Re-orientation of a Theory of Monetary Economy, Springer.
Otaki, M. (2016) Keynes’s General Theory Reconsidered in the Context of the Japanese Economy, Springer.
Pigou, A. C. (1943) The classical stationary state, Economic Journal, 53, 343–351.
Schultz, C. (1992) The impossibility of involuntary unemployment in an overlapping generations model with rational expectations, Journal of Economic Theory, 58, 61–76.
Tanaka, Y. (2020a) Involuntary unemployment with indivisible labor supply under perfect competition, Economics Bulletin, 40, 1914–1923.
Tanaka, Y. (2020b) Involuntary Unemployment in a Neoclassical Model, Studia Universitatis Babeș-Bolyai Oeconomica, 65, 12-28.
Umada, T. (1997) On the existence of involuntary unemployment (hi-jihatsuteki-shitsugyo no sonzai ni tsuite (in Japanese), Yamaguchi Keizaigaku Zasshi, 45 (6), 61–73.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Studia Universitatis Babeș-Bolyai Oeconomica
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
