Abstract
A recurrent question raised by many economists who aim to construct a microeconomic foundation for some type of Keynesianism, is why wages are sticky; i.e. why they do not change to clear the labour market rapidly enough under the pressure of involuntary unemployment. The basic theoretical issue is not the rigidity of wages caused by the existence of unionised workers, but why wages are ‘sticky’ also in cases in which unions are absent or relatively weak. In Keynes we find the following conjecture about the asymmetric response of wages:
Thus any given group of workers may be extremely sensible not to resist a fall in real wages which comes about through a rise in prices which is the natural resultant of the operation of the other forces of the economic system; and yet to resist a fall in money wages through a revision of wage bargain. For the former, being in general of an all around character, will not disturb their relative real wage and is, moreover, the inevitable accompaniment of increased employment on the whole. (Keynes, Collected Works, XIV, p. 365, emphasis added)
This chapter is a revised version of a paper based on research carried out at the Wissenschaftszentrum Berlin für Sozialforschung (Parrinello, 1990).
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Parrinello, S. (1995). The Efficiency Wage Hypothesis in the Long Period. In: Harcourt, G., Roncaglia, A., Rowley, R. (eds) Income and Employment in Theory and Practice. The Jerome Levy Economics Institute Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-23705-0_9
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