1. bookVolume 67 (2022): Issue 1 (April 2022)
Journal Details
License
Format
Journal
eISSN
2065-9644
First Published
06 Mar 2016
Publication timeframe
3 times per year
Languages
English
access type Open Access

Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model

Published Online: 14 May 2022
Volume & Issue: Volume 67 (2022) - Issue 1 (April 2022)
Page range: 11 - 26
Journal Details
License
Format
Journal
eISSN
2065-9644
First Published
06 Mar 2016
Publication timeframe
3 times per year
Languages
English
Abstract

We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. When there exists involuntary unemploymnet, the nominal wage rate may decline. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy.

Keywords

JEL Classification

Hansen, G. D. (1985) Indivisible labor and business cycle, Journal of Monetary Economics, 16, 309–327.10.1016/0304-3932(85)90039-X Search in Google Scholar

Kalecki, M. (1944) “The classical stationary state” A comment, Economic Journal, 54, 131–132. Search in Google Scholar

Lavoie, M. (2001) Efficiency wages in Kaleckian models of employment, Journal of Post Keynesian Economics, 23, 449–464.10.1080/01603477.2001.11490293 Search in Google Scholar

McDonald, I. M., Solow, R. M. (1981) Wage bargaining and employment. American Economic Review, 71, 896–908. Search in Google Scholar

Otaki, M. (2007) The dynamically extended Keynesian cross and the welfare-improving fiscal policy, Economics Letters, 96, 23–29.10.1016/j.econlet.2006.12.005 Search in Google Scholar

Otaki, M. (2009) A welfare economics foundation for the full-employment policy, Economics Letters, 102, 1–3.10.1016/j.econlet.2008.08.003 Search in Google Scholar

Otaki, M. (2012) The aggregation problem in the employment theory: The representative individual model or individual employees model?, Theoretical Economics Letters, 2, 530–533. (https://www.scirp.org/journal/paperinformation.aspx?paperid=25920)10.4236/tel.2012.25098 Search in Google Scholar

Otaki, M. (2015) Keynsian Economics and Price Theory: Re-orientation of a Theory of Monetary Economy, Springer.10.1007/978-4-431-55345-8_2 Search in Google Scholar

Otaki, M. (2016) Keynes’s General Theory Reconsidered in the Context of the Japanese Economy, Springer.10.1007/978-4-431-55915-3 Search in Google Scholar

Pigou, A. C. (1943) The classical stationary state, Economic Journal, 53, 343–351.10.2307/2226394 Search in Google Scholar

Schultz, C. (1992) The impossibility of involuntary unemployment in an overlapping generations model with rational expectations, Journal of Economic Theory, 58, 61–76.10.1016/0022-0531(92)90101-M Search in Google Scholar

Tanaka, Y. (2020a) Involuntary unemployment with indivisible labor supply under perfect competition, Economics Bulletin, 40, 1914–1923. Search in Google Scholar

Tanaka, Y. (2020b) Involuntary Unemployment in a Neoclassical Model, Studia Universitatis Babeș-Bolyai Oeconomica, 65, 12-28.10.2478/subboec-2020-0007 Search in Google Scholar

Umada, T. (1997) On the existence of involuntary unemployment (hi-jihatsutekishitsugyo no sonzai ni tsuite (in Japanese), Yamaguchi Keizaigaku Zasshi, 45 (6), 61–73. Search in Google Scholar

Recommended articles from Trend MD

Plan your remote conference with Sciendo