Economics, Econometrics and Finance
4 years ago

Efficiency wages boost employment and challenge traditional macroeconomic policies.

RePEc: Research Papers in Economics
A Classical Model of Involuntary Unemployment: Efficiency Wages and Macroeconomic Policy
Bruno Jullien, Pierre M. Picard

Paper Summary

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The article presents a model of unemployment caused by workers being paid more than their market value to prevent laziness. The model shows that giving subsidies to employers can help improve welfare, and the usual rules about interest rates may not always apply. Additionally, increasing public spending temporarily can also be beneficial.