Efficiency Wages and Economic Growth

• Main Author: HOON, Hian Teck
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1993
• Subjects: Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/175
• Institution: Singapore Management University

This paper examines the positive and normative implications of introducing efficiency wages into a standard growth model. A number of useful findings are obtained under the empirically justifiable assumption that the elasticity of substitution between capital and labor is less than unity. It is shown that an increase in thrift shifts downward the whole path of equilibrium unemployment to leave it permanently lower in the new steady state. A level increase in the measure of, as well as an increase in the rate of Harrod-neutral technical progress, are contractionary for equilibrium employment. The market economy underinvests.