Wages, Prices, the Natural Wage and Income Distribution

2001 ◽  
Author(s):  
Peter M. Gutman
Keyword(s):  
Economic Growth ◽  
Income Distribution ◽  
Real Wage ◽  
Monopolistic Competition ◽  
Price Level ◽  
Full Employment ◽  
Real Wages ◽  
Natural Rate ◽  
Natural Rate Of Unemployment ◽  
Short Run

In a world of oligopoly and monopolistic competition, prices are essentially set using a markup principle. Real wages are money wages divided by average price level, which depends on average markup level. In the short run, as markups and real wages change when expectations are not correct, income distribution changes. The natural real wage is the real wage at full employment (natural rate of unemployment NAIRU). Even without economic growth the natural real wage, hence income distribution, can change. With economic growth, the natural real wage occurs at: lower rates of unemployment in dynamic societies; higher rates of unemployment in sluggish societies.

The Employment –Wage Relationship Was Keynes right after all?

2008 ◽  
Vol 6 (1) ◽  
Author(s):  
Nicholas Apergis ◽  
Keyword(s):  
Real Wage ◽  
Panel Cointegration ◽  
Oecd Countries ◽  
Statistical Evidence ◽  
Real Wages ◽  
Long Run ◽  
Short Run

This paper investigates the existence and direction of a relationship between real wages and employment. Using a panel from ten different OECD countries, from 1950 to 2005, it applies panel cointegration and causality methodology. This study finds statistical evidence for a long run relationship between these two variables. However, it firmly rejects the hypothesis that wages cause employment in the short-run. Thus the results support Keynes’s view namely, real wages fall because employment increases, presumably via an increase in demand. The results imply that real wage reduction is not sufficient to induce an expansion of output and employment.

scholarly journals An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend

2020 ◽  
Vol 15 (4) ◽  
pp. 953-998 ◽  
Author(s):  
Ichiro Takahashi ◽  
Isamu Okada
Keyword(s):  
Banking Sector ◽  
Full Employment ◽  
Aggregate Demand ◽  
Real Wages ◽  
Fractional Reserve Banking ◽  
Investment Funds ◽  
Wage Stickiness ◽  
Long Run ◽  
Short Run ◽  
Reserve Banking

Abstract Economists have investigated how price–wage rigidity influences macroeconomic stability. A widely accepted view asserts that increased rigidity destabilizes an economy by requiring a larger quantity adjustment. In contrast, the Old Keynesian view regards nominal rigidity as a stabilizing factor, because it reduces fluctuations in income and thus aggregate demand. To examine whether price–wage stickiness is stabilizing or destabilizing, we build an agent-based Wicksell–Keynes macroeconomic model, which is completely closed and absolutely free from any external shocks, including policy interventions. In the model, firms setting prices and wages make both employment and investment decisions under demand constraints, while a fractional-reserve banking sector sets the interest rate and provides the firms with investment funds. As investment involves a gestation period, it is conducive to overproduction, thereby causing alternate seller’s and buyer’s markets. In the baseline simulation, a stable economy emerges with short-run business cycles and long-run fluctuations. One unique feature of the economy is its remarkable resilience: When afflicted by persistent deflation, it often manages to reverse the deflationary spiral and get back on a growth track, ultimately achieving full or nearly full employment. The virtual experiments demonstrate that prices and wages must both be moderately rigid to ensure long-run stability. The key stabilizing mechanism is a recurring demand-sufficient economy, in which firms are allowed to increase employment while simultaneously cutting real wages.

scholarly journals Market Power, NAIRU, and the Phillips Curve

2020 ◽  
Vol 2020 ◽  
pp. 1-18
Author(s):  
Derek Zweig
Keyword(s):  
Interest Rates ◽  
Phillips Curve ◽  
Functional Form ◽  
The United States ◽  
Medium Term ◽  
Natural Rate ◽  
Natural Rate Of Unemployment ◽  
Long Run ◽  
Weak Evidence ◽  
Short Run

We explore the relationship between unemployment and inflation in the United States (1949-2019) through both Bayesian and spectral lenses. We employ Bayesian vector autoregression (“BVAR”) to expose empirical interrelationships between unemployment, inflation, and interest rates. Generally, we do find short-run behavior consistent with the Phillips curve, though it tends to break down over the longer term. Emphasis is also placed on Phelps’ and Friedman’s NAIRU theory using both a simplistic functional form and BVAR. We find weak evidence supporting the NAIRU theory from the simplistic model, but stronger evidence using BVAR. A wavelet analysis reveals that the short-run NAIRU theory and Phillips curve relationships may be time-dependent, while the long-run relationships are essentially vertical, suggesting instead that each relationship is primarily observed over the medium-term (2-10 years), though the economically significant medium-term region has narrowed in recent decades to roughly 4-7 years. We pay homage to Phillips’ original work, using his functional form to compare potential differences in labor bargaining power attributable to labor scarcity, partitioned by skill level (as defined by educational attainment). We find evidence that the wage Phillips curve is more stable for individuals with higher skill and that higher skilled labor may enjoy a lower natural rate of unemployment.

Effective Demand and Income Distribution in The General Theory

1994 ◽  
Author(s):  
C. Sardoni
Keyword(s):  
General Theory ◽  
Income Distribution ◽  
Real Wage ◽  
Wage Rate ◽  
Full Employment ◽  
New Approach ◽  
The Real ◽  
Short Period ◽  
Real Wage Rate ◽  
The One

The paper looks at income distribution in a short-period context which is similar to that of Keynes’s General Theory. The approach to distribution is different from the one Kaldor adopted in the 1950s: no assumption of full employment is made. The conclusions concerning income distribution which can be inferred from the General Theory depend on Keynes’s assumptions concerning the behavior of prices and the real wage rate with respect to changes in output. In the paper these assumptions are criticized and the implications in terms of distribution are examined. In 1938-1939, Keynes’s conjectures about the relation between output level and the real wage rate were criticized by Dunlop, Tarshis, and, by implication, Kalecki. In his rejoinder, Keynes accepted some of these criticisms and suggested a new approach to income distribution that differs from Kaldor’s and is close to the one adopted by Kalecki and developed by Joan Robinson.

America’s Great Decoupling

2018 ◽  
Author(s):  
Lane Kenworthy
Keyword(s):  
United States ◽  
Economic Growth ◽  
Income Distribution ◽  
The United States ◽  
Living Standards ◽  
Significant Extent ◽  
Real Wages ◽  
Main Factor

This chapter sets out the significant extent to which the fruits of economic growth since the late 1970s have gone to the very top of the income distribution in the case of the United States. There has been little growth in real wages and incomes for most households, with dual earning being the main source of any such increase. The chapter identifies the growth in incomes at the very top as the main factor accounting for stagnation across the rest of the distribution, and discussed the range of channels through which this relationship operates, more and less directly. It also discusses broader debates about the extent to which real incomes are likely to reflect changes in living standards, and concludes that, while not telling the whole story, they remain central.

scholarly journals The Relationship between Money Supply, Price Level and Economic Growth In Pakistan: Keynesian versus Monetarist View

2018 ◽  
Vol 11 (2) ◽  
pp. 49-64
Author(s):  
Abdul Mansoor ◽  
Quratulain Shoukat ◽  
Shagufta Bibi ◽  
Khushbakht Iqbal ◽  
Romana Saeed ◽  
...  
Keyword(s):  
Economic Growth ◽  
Money Supply ◽  
Price Level ◽  
Economic Policies ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
The Relationship ◽  
Supply Price

AbstractThe objective of the study is to examine the relationship between money supply, price level and economic growth in the context of Pakistan by using Autoregressive Distributed Lag (ARDL) model, covered a period of 1980 to 2016. The results confirm the long-run relationship between the variables while using broad money supply as a response variable. However, in the price and income modeling, the variables do not support the cointegration relationship between the variables. The causality results confirmed the unidirectional relationship running from income to money supply, which implies that income do causes money supply in the short run, whereas money supply leads to inflation to support Monetarist view of inflation in a country. The results conclude that economic growth is imperative to stabilize money supply and price level through sound economic policies in a country.

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