Wage Growth, Productivity Growth, and the Evolution of Employment

45 Pages Posted: 4 Sep 2001

See all articles by Martin F. Hellwig

Martin F. Hellwig

Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics

Andreas Irmen

University of Luxembourg - Ceter for Research in Economic Analysis (CREA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich

Date Written: August 2001

Abstract

This Paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivity grows at the same rate as wages, the real interest rate is below the laissez-faire level, and so is the common growth rate of consumption, demand, and output. In these steady-state equilibria employment contracts at a constant rate equal to the difference between the growth rates of productivity and output. This contrasts with the view that equality of wage growth and productivity growth is a condition for constant employment.

Keywords: Endogenous technical change, perfect competition, productivity growth, wages, employment

JEL Classification: D24, D92, E20, E24, J30, O30, O40

Suggested Citation

Hellwig, Martin F. and Irmen, Andreas, Wage Growth, Productivity Growth, and the Evolution of Employment (August 2001). CEPR Discussion Paper No. 2927. Available at SSRN: https://ssrn.com/abstract=282331

Martin F. Hellwig (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Bonn - Department of Economics

Adenauerallee 24-42
D-53113 Bonn
Germany

Andreas Irmen

University of Luxembourg - Ceter for Research in Economic Analysis (CREA) ( email )

162a, avenue de la Faïencerie
Luxembourg, L – 1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/crea/people/andreas_irmen

CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich

Poschinger Str. 5
Munich, DE-81679
Germany

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