Efficiency Wage Models of Unemployment
- 1 January 1995
- book chapter
- Published by Bloomsbury Academic
Abstract
Keynesian economists hold it to be self-evident that business cycles are characterized by involuntary unemployment. But construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear. Involuntarily unemployed people, by definition, want to work at less than the going wage rate. Why don’t firms cut wages, thereby increasing profits?Keywords
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