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Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 240 Abstract:
A model of a labor market is developed in which agents possess private information about their marginal products. As a result, involuntary unemployment may arise as a consequence of attempts by firms to create appropriate self-selection incentives. Moreover, employment lotteries may arise for the same reason despite the fact that, in equilibrium, there is no uncertainty in the model. When employment is random, this is both privately and socially desirable. Finally, it is shown that the unemployment that arises is consistent with (a) pro-cyclical aggregate real wages and productivity, (b) employment that fluctuates (at individual and aggregate levels) much more than real wages.
Palabra clave: Wages, Employment, Private information, and Labor market Tema: E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, E12 - General Aggregative Models: Keynes; Keynesian; Post-Keynesian, and D82 - Asymmetric and Private Information; Mechanism Design
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 230 Abstract:
An overlapping generations model is developed that contains labor markets in which adverse selection problems arise. As a response to these problems, quantity rationing of labor occurs. In addition, the model is capable of generating (a) random employment and prices despite the absence of underlying uncertainty in equilibrium; (b) a statistical (nondegenerate) Phillips curve; (c) procyclical movements in productivity; (d) correlations between aggregate demand and unemployment (and output); (e) an absence of correlation between unemployment (employment) and real wages. In addition, the Phillips curve obtained typically has the "correct" slope. Finally, the model reconciles the theoretical importance and observed unimportance of intertemporal substitution effects, and explains why price level stability may be a poor policy objective.
Palabra clave: Philips curve, Prices, Labor, Productivity, Money, and Unemployment Tema: E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, E12 - General Aggregative Models: Keynes; Keynesian; Post-Keynesian, and E32 - Business Fluctuations; Cycles