<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>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.</p>
</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.

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

Studia Universitatis Babes-Bolyai Oeconomica

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We...

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

Published Online: May 14, 2022

Page range: 11 - 26

DOI: https://doi.org/10.2478/subboec-2022-0002

Keywords
involuntary unemployment, monopolistic competition, wage rate decline, real balance effect

© 2022 Yasuhito Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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

Published Online: May 14, 2022

Page range: 11 - 26

DOI: https://doi.org/10.2478/subboec-2022-0002

Keywordsinvoluntary unemployment, monopolistic competition, wage rate decline, real balance effect

© 2022 Yasuhito Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
involuntary unemployment, monopolistic competition, wage rate decline, real balance effect