Wage Equality in a General Equilibrium Model with Indivisibilities,” Forthcoming in The Journal of Scandinavian Economics (original) (raw)

Some Implications of Wage Equality in a General Equilibrium Model with Indivisibilities

SSRN Electronic Journal, 2000

This paper looks at a general equilibrium model in a setting with indivisible consumer goods, product market power and a labor market distortion. The labor market distortion is due to wages being independent of ability in the indivisible good sector. This independence could be due to a complicated production process that makes ability hard to signal and infer, or due to a commitment to wage equality on the basis of socialist ideology. Technological progress may be counter productive in this setting, so that the decline of socialism may be a result of technological forces. Redistribution may have adverse e®ects in a less productive economy and bene¯cial e®ects in a productive one suggesting that it is a luxury poor counties cannot a®ord, but that rich ones bene¯t from. The model can also be interpreted in Keynesian terms as there are multiple equilibria which can be thought of as depression and prosperity. ¡ ¡ ¡ ¡

Wage Equality In a General Equilibrium Model With Indivisibilities

2001

This paper looks at some consequences of a comittment to wage equality in some sectors of the economy which produce lumpy consumer goods. We show that in this setting, there are two equilibria, with high or low wages, incomes and output. In this closed economy, growth may be immiserizing. We also show that redistribution may eliminate the low wage equilibrium in productive economies but in unproductive ones it eliminates the market for indivisible good itself! This suggests why redistribution could be a "rich man's game." ¡ ¡ ¡ ¡ ¡

Equilibrium Wage Dispersion: An Example

Topics in Macroeconomics, 2000

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Benefits conditional on work and the Nordic model

Journal of Public Economics, 2014

Welfare bene…ts in the Nordic countries are often tied to employment. We argue that this is one of the factors behind the success of the Nordic model, where a comprehensive welfare state is associated with high employment. In a general equilibrium setting, the underlining mechanism works through wage moderation and job creation. The bene…ts make it more important to hold a job, thus lower wages will be accepted, and more jobs created. Moreover, we show that the incentive to acquire higher education improves, further boosting employment in the long run. These positive e¤ects help counteracting the negative impact of taxation. Through numerical simulations, we show how this mechanism can contribute to explain the better labor market performance and more equitable income distribution of Nordic countries compared to Continental European ones.

A New Model of Wage Determination and Wage Inequality

This paper proposes a new model of wage determination and wage inequality. In this model, wage-setters set workers' wages; they do so either directly, as when individuals vote in a salary committee, or indirectly, as when political parties, via the myriad of social, economic, fiscal, and other policies, generate wages. The recommendations made by wage-setters (or arising from their policies) form a distribution, and all the wage-setter-specific distributions are combined into a single final wage distribution. There may be any number of wage-setters; some wage-setters count more than others; and the wage-setters may differ among themselves on both the wage distribution and the amounts recommended for particular workers. We use probability theory to derive initial results, including both distributionindependent and distribution-specific results. Fortuitously, elements of the model correspond to basic democratic principles. Thus, the model yields implications for the effects of democracy on wage inequality. These include: (1) The effects of the number of wage-setters and their power depend on the configuration of agreements and disagreements; (2) Independence of mind reduces wage inequality, and dissent does so even more; (3) When leaders of democratic nations seek to forge an economic consensus, they are unwittingly inducing greater economic inequality; (4) Arguments for independent thinking will be more vigorous in small societies than in large societies; (5) Given a fixed distributional form for wages and two political parties which either ignore or oppose each other's distributional ideas, the closer the party split to 50-50, the lower the wage inequality; and (6) Under certain conditions the wage distribution within wage-setting context will be normal, but the normality will be obscured, as cross-context mixtures will display a wide variety of shapes.

Efficiency wage theory and general equilibrium

1990

In this paper we incorporate the efficiency wage theory in a general equilibrium model. In such a model wage rigidities resulting from the behaviour of rational agents can be endogenized, while at the same time general equilibrium effects can be taken into account. These wage rigidities can give rise to either unemployment or overemployment. We will give sufficiënt conditions for the existence of a quantity constrained equilibrium in a general equilibrium model with production. Furthermore, our model will be illustrated with a simple example. Acknowledgement The author wishes to thank Gerard van der Laan for some helpful comments .

Decomposing Wage Inequality Change Using General Equilibrium Models

2002

This paper presents ex post decomposition analysis of wage inequality change using multisector general equilibrium models. The analytical structure used is a specific-factors model of trade, which we calibrate to UK data for the two years 1979 and 1975. We first calibrate our general equilibrium trade model to observations on wage inequality, trade, production and consumption spanning these years, capturing the separate influences of trade, technology and demographics on inequality. Between these years wage inequality changed, but multiple changes in exogenous variables occurred (world prices, technology, endowments). We use calibration techniques to determine parameter values consistent with both the equilibria and the changes in exogenous variables contributing to the wage inequality change being decomposed. We then compute counterfactual equilibria in which only some of the changes in exogenous variables are present to allow us to assess what portion of the observed change is attributable to the various contributing factors. Our findings are that the roles of trade and factor-biased technological change are relatively larger than in earlier literature. We also find that changes in factor endowments to offset increased inequality generated by trade and skilled-biased technological changes, a feature that seems to have gone relatively unnoticed in earlier literature.