Consumer Demand and Equilibrium Unemployment in a Working Model of the Customer-Market Incentive-Wage Economy
Quarterly Journal of Economics
1992
Though not conceived as a constant, the natural unemployment rate was taken to be invariant to supply shocks until the late seventies and to real demand shocks until now. The largely micro-theoretic model here is one in a series deriving the natural rate path from general equilibrium. In this model the labor market exhibits generalized real-wage rigidity, resulting from the use of "incentive wages" to combat shirking, and the asset backing shares is the firms' customers, arising from customer-market friction. One finding is that increased consumer demand drives up the natural rate by driving real interest rates up.
- DOI
- 10.2307/2118372
- Volume
- 107 (3)
- Pages
- 1003-1032
- Language
- en
- Export
- BibTeX
- Sources
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