Premium
Relative Price Changes, Wages and Unemployment in a Specific Factors Model with Search Frictions
Author(s) -
Wälde Klaus,
Weiss Pia
Publication year - 2006
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2006.00366.x
Subject(s) - economics , unemployment , labour economics , wage , wage bargaining , efficiency wage , real wages , full employment , product (mathematics) , relative price , macroeconomics , geometry , mathematics
This paper analyzes the effects of changes in the relative product price on wages and unemployment of a small open economy in a specific factors model characterized by search frictions. It shows that unemployment and wages move in opposite directions, i.e., high unemployment is associated with low wages and low unemployment with high wages. The reason for the employment effect is found to be individual wage bargaining.