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Discussion Papers
Collana di
E-papers del Dipartimento di Scienze Economiche – Università di Pisa
Marco Guerrazzi – Nicola Meccheri
From Wage Rigidities to Labour Market
Rigidities: A Turning-Point in Explaining
Equilibrium Unemployment?
Discussion Paper n. 94
2009
FROM WAGE RIGIDITIES TO LABOUR MARKET RIGIDITIES3
Discussion Paper n. 94, presentato: novembre 2009
Indirizzo dell’Autore:
Marco Guerrazzi: Department of Economics, Faculty of Political Science, University of Pisa,
via F. Serafini 3, 56124 Pisa, Phone +39 050 2212434, Fax +39 050 2212450, e-mail
guerrazzi@ec.unipi.it
Nicola Meccheri: Department of Economics, Faculty of Economics, University of Pisa, via
C. Ridolfi 10, 56124 Pisa, Phone +39 050 2216377, Fax +39 050 2216384, e-mail
meccheri@ec.unipi.it
© Marco Guerrazzi – Nicola Meccheri
La presente pubblicazione ottempera agli obblighi previsti dall’art. 1 del decreto legislativo
luogotenenziale 31 agosto 1945, n. 660.
Ringraziamenti
We would like to thank Massimo Di Matteo, Enrico Ghiani, Mario Morroni, and all the
participants at the VI STOREP Conference (Florence 2009) for their comments and
suggestions. The usual disclaimers apply.
Si prega di citare così:
M. Guerrazzi, N. Meccheri (2009), “From Wage Rigidities to Labour Market Rigidities: A Turning-Point
in Explaining Equilibrium Unemployment?”, Discussion Papers del Dipartimento di Scienze Economiche
– Università di Pisa, n. 94 (http://www-dse.ec.unipi.it/ricerca/discussion-papers.htm).
Discussion Paper
n. 94
Marco Guerrazzi – Nicola Meccheri
From Wage Rigidities to Labour Market
Rigidities: A Turning-Point in Explaining
Equilibrium Unemployment?
Abstract
From Wage Rigidities to Labour Market Rigidities: A Turning-Point in
Explaining Equilibrium Unemployment?
This paper offers a critical discussion of the concept of labour market rigidity relevant
to explaining unemployment. Starting from Keynes’s own view, we discuss how the
concept of labour market flexibility has changed over time, involving nominal or real
wage flexibility, contract flexibility or labour market institution flexibility. We also
provide a critical assessment of the factors that lead the search framework highlighting
labour market rigidities (frictions) to challenge the more widespread explanation of
equilibrium unemployment grounded on wage rigidity.
Classificazione JEL: E12, E24
Keywords: Labour Market Rigidities, Nominal and Real Wages, Unemployment,
Search Theory
2 MARCO GUERRAZZI -NICOLA MECCHERI
“Labor-market flexibility is a much
discussed but still vague concept”
Christopher A. Pissarides (1997, p.
516)
“It seems clear that those who
point to labour-market rigidity as
the source of high unemployment
have something other than simple
nominal or real wage rigidity in
mind”
Robert M. Solow (1998, p. 190)
1. Introduction
The macroeconomic role of the labour market has always been at the very
centre of discussions about unemployment. Moreover, in such discussions, the
concept of labour market flexibility or rigidity has often played a prominent
role: according to a dominant perspective (too often accepted uncritically),
stronger rigidities are associated with higher unemployment and vice versa.
However, as argued by Pissarides (1997, p. 516) and Solow (1998, p. 190), in
some theoretical frameworks “labour market rigidity/flexibility” is not defined
very precisely or directly and, more relevantly, in the economic literature this
concept has changed, sometime even remarkably, over time.
The aim of this paper is twofold. Firstly, starting from Keynes’s own
view, we discuss how the concept of labour market flexibility, particularly in
relation to equilibrium unemployment, has changed over time involving the
flexibility of (nominal or real) wage, contracts or labour market institutions.
We then provide a critical assessment of the factors that lead labour market
rigidities (frictions) stressed by the search framework (e.g. Pissarides 1985;
2000; Mortensen and Pissarides 1994) to challenge the more widespread
explanation of equilibrium unemployment grounded on wage rigidity.
In the traditional neoclassical explanation of unemployment, the real
wage rate plays the most important role: (involuntary) unemployment occurs
due to a real wage rate which is too high compared to its market-clearing level.
Thus, in such a theoretical context, the concept of labour market rigidity refers
to real wage rates: the labour market is (significantly) rigid if there are forces
that prevent the reduction of a real wage rate fixed higher than its market
clearing level. However, in the neoclassical world, the conventional way to
achieve a flexible real wage rate is through a flexible nominal wage rate; hence
nominal wage flexibility is at least as important as real wage flexibility.1
Moreover, in perfectly competitive labour markets, nominal wage flexibility
should be ensured by the free operation of market adjustments, making full
employment the normal state of affairs.
The literature since Keynes’s General Theory has rejected the insights
of the neoclassical model or abounded some of its hypotheses, exploring
several issues in depth. For instance, agreed that it is not so useful to refer to
(market clearing) models in which labour market flexibility is defined with
reference to perfectly and instantaneously flexible nominal wages, which
concept of labour market flexibility must we consider? In other words, what
are the rigidities that actually affect labour market performance and contribute
to explain the persistence of involuntary unemployment over time?
Furthermore, in the absence of perfect and instantaneous flexibility, do greater
flexibility of wages and other institutional variables in labour markets
strengthen the equilibrating mechanisms, or do they weaken them? More
generally, is labour market flexibility a good thing for society as a whole?
In this paper, we argue that, in explaining unemployment behaviour and
its persistence over time, all theories we survey, with the prominent exception
of Keynes’s own work, hinge, more or less directly, on the presence of some
sources of (real) wage rigidity. In particular, we stress that while this is a well-
known argument in relation to some theoretical models (e.g. New Keynesian
models of the labour market), it substantially holds true also for other
1A good example of this argument is given by the contributions by Hahn and
Solow (1986; 1995) in which the effects of nominal wage flexibility are examined in
an OLG model with flexible real wage rates.
4 MARCO GUERRAZZI -NICOLA MECCHERI
approaches to equilibrium unemployment, most notably the search or matching
framework, according to which unemployment is usually explained as a result
of “labour market rigidities” or “frictions”, instead of wage rigidity. In our
opinion, the key role actually played by wage rigidity largely reflects the
common neoclassical framework underlying all those models (even those
labelled as “Keynesian”).
The remaining part of the paper is organized as follows. Section 2
briefly summarizes Keynes’s arguments on wage behaviour and
unemployment. It also reaffirms that, though a common presentation of his
work (even provided by theories that commonly belong to the Keynesian
tradition) tends to emphasize the role of nominal wage rigidity, in Keynes’s
own idea there is no concept of labour market rigidity that actually plays a
major role for the unemployment equilibrium result. Section 3 introduces New
Keynesian theories of real wage rigidity, which have also served as an
institutional background for the so-called “wage-gap hypothesis” for high
unemployment in Europe during the 1980s and 90s. Furthermore, it is also
discussed how, in such a theoretical framework, some scholars have advanced
the idea that contract rigidity, far more than wage rigidities, represents the
relevant concept for explaining equilibrium unemployment (and adverse
business fluctuations). Section 4 describes the theoretical switching from
contract (or real wage) rigidities to the broad category of labour market
rigidities (or frictions). Section 5 briefly reviews the search or matching model
of unemployment and Section 6 disentangles the perhaps surprising role of real
wage rigidity inside that framework. Finally, section 7 concludes.
2. Nominal Wage Rigidity and Unemployment in Keynes
and (Old) Keynesian View
According to a widespread view of Keynes’s original work, what is crucial in
Keynesian economics in explaining unemployment is nominal wage rigidity
(e.g. Mankiw 1993, pp. 3-4). This misleading interpretation may be accounted
for as follows: i) at the beginning of The General Theory (GT, Chapter 2),
Keynes assumed that the nominal wage rate was constant in order to facilitate
the exposition of his argument (however, he also clarified that “the essential
character of the argument is precisely the same whether or not money-wages
[...] are liable to change” (GT, p. 27)); and ii) he also provided a well-known
reason for the observation of downward nominal wage stickiness in the
presence of excess labour supply, in the circumstances of British industrial
relations between the two World Wars, which related to workers’ concern
about relative wages. In fact, in Chapter 19 of The General Theory, Keynes
also considered in great detail the effects of a nominal wage reduction (or
flexibility) and he pointed out that “the precise question at issue is whether the
reduction in money-wages will or will not be accompanied by the same
aggregate effective demand as before” (GT, p. 259). In particular, he argued
that, in a small closed economy, the way in which nominal wage cuts would
produce positive effects on unemployment (via increasing aggregate effective
demand) could operate primarily through their impact on the interest rate (the
“Keynes effect”). In other words, holding a nominal quantity of money
constant, a decline in prices that follows that of nominal wages will produce an
increase in the real quantity of money and hence a decrease in the interest rate
that could stimulate aggregate demand via investment expenditure. Keynes,
however, argued that, starting from an insufficient aggregate demand and
underemployment equilibrium, a policy of greater nominal wage flexibility
would be unlikely to generate forces powerful enough to lead the economy
towards full employment. On the contrary, the main result of this policy would
be to cause a great instability of prices “so violent perhaps as to make business
calculations futile in an economic society functioning after the manner of that
6 MARCO GUERRAZZI -NICOLA MECCHERI
in which we live” (GT, p. 269). In sum, in Keynes’s own view, it was highly
likely that the negative effects (on aggregate demand) of nominal wage
flexibility would have outweighed the positive effects. As a consequence,
aggregate demand, output and employment would be decreased rather than
increased. Furthermore, fluctuations of prices and instability of short-run
employment equilibrium would be reduced with a rigid (nominal) wage policy
(GT, p. 271).2
Although Keynes provided several arguments for the importance of
negative effects produced on aggregate demand by nominal wage cuts, during
the 1960s the dominant interpretation of his theory put forward by the
“neoclassical synthesis” mainly focused instead on the limits of the mechanism
through which the positive (Keynes) effect operates in the liquidity trap case
(perfectly horizontal LM curve) and in the interest-inelastic investment case
(perfectly vertical IS curve).3At the same time, Keynesian economists of the
neoclassical synthesis also emphasized that Keynes did not duly consider
another more direct effect that falling nominal wages (and prices) would
produce, namely the real-balance or Pigou effect (e.g. Pigou 1947; Patinkin
1948) which, by increasing real wealth in the form of increased real value of
base money, may in turn increase aggregate demand via a rise in consumption
expenditure and, possibly, also in investment expenditure as wealth-owners
seek to maintain portfolio balance between real and nominal assets. This led
the above economists to conclude that (downward) nominal wage rigidity was
crucial in preventing neoclassical automatic adjustment to full employment and
in explaining the persistence of Keynesian unemployment.4
2On this point, see also Keynes (1973, pp. 343-67; 1981, pp. 3-16). In Meccheri
(2007) a more general discussion is provided.
3Although Keynes first introduced these two theoretical reasons why the Keynes
effect might fail, he also disclaimed belief in their practical significance. This
particularly holds for the liquidity trap case, about which Keynes said, “whilst this
limiting case might become practically important in future, I know of no example of it
hitherto” (GT, p. 207).
4For instance, in his 1944 ground-breaking article, Modigliani clearly states “It is
usually considered as one of the most important achievements of the Keynesian theory
that it explains the consistency of economic equilibrium with the presence of
involuntary unemployment. It is, however, not sufficiently recognized that, except in a
limiting [liquidity trap] case, this result is due entirely to the assumption of “rigid
In the neoclassical synthesis, however, “crucial” (nominal) wage
rigidities were assumed rather than explained. Thus one of the most important
contributions of New Keynesian Economics (NKE), which starts to emerge
during the late 1970s, has often been associated with the improvements
obtained in providing consistent micro-foundations for the phenomena of
sluggish wage (and price) adjustments in order to reconcile Keynes’s theory
with the (neo)classical tradition.5For instance, two prominent New Keynesian
economists state this explicitly by arguing, “The New Keynesian Economics
[...] succeeds both in filling the lacunae in traditional Keynesian theory (e.g. by
explaining partial wage rigidities, rather than simply assuming rigid wages)
and resolving the paradoxes and inconsistencies of more traditional Keynesian
theory” (Greenwald and Stiglitz 1987, p. 126). However, at least three major
aspects distinguish NKE from Keynes’s original ideas about the nexus between
wage flexibility and unemployment: i) differently from Keynes, new
Keynesian theories of involuntary unemployment mainly concentrate on real
wage rigidity; ii) although both in analyses by Keynes and the new Keynesians
a decrease in the real wage rate is necessarily linked to an increase in
employment, the mechanism which underlies this relation differs markedly in
the two frameworks; iii) new Keynesian models of the labour market largely
leave unclear the role of aggregate demand and expectations (i.e. animal
spirits) in affecting unemployment.
Before turning to real wage rigidity and analyzing in greater detail the
three points above in relation to NKE, it is important to emphasize that, in the
economics of Keynes, real wage rigidity does not play any major role.
[money] wages” (Modigliani 1944, p. 65, italics added). Instead, for some
contributions during the late 1970s and early 1980s closer to Keynes’s view that wage
(and price) rigidity is not the only problem and perhaps not even the main problem,
see Tobin (1975), Hahn (1984), Schultze (1985), Hahn and Solow (1986, 1995) and
De Long and Summers (1986).
5Some authors (e.g. Zenezini 1997, p. 259) argue that this is due to the fact that
Keynesian economists did not attribute any importance to nominal wage rigidity in
explaining unemployment. We believe that this is undoubtedly true with reference to
Keynes’s own view. At the same time, we are sceptical that this argument can also be
extended to the Keynesian economists of neoclassical synthesis. Indeed, Keynesian
unemployment would not have been relegated to a “special case” if the argument also
held for the neoclassical synthesis.
8 MARCO GUERRAZZI -NICOLA MECCHERI
Labelling as “fallacy of composition” the dominant (neoclassical) view
according to which a nominal wage reduction also automatically leads to a
decline in the real wage rate, Keynes emphasized that the latter is not directly
fixed by economic agents through bargaining (e.g. Trevithick 1992) and that
only a rise in the effective demand would determine, via an increase in prices, a
fall in the real wage rate (together with an increase in output and employment).
Literally, “[t]he propensity to consume and the rate of new investment
determine between them the volume of employment, and the volume of
employment is uniquely related to a given level of real wages – not the other
way round” (GT, p. 30). Moreover, Keynes believed that real wages would be a
by-product of the remedies to restore equilibrium, since they “come in at the
end of the argument rather than at the beginning” (Keynes 1973, p. 178).
Putting it another way, in Keynes’s view, the real wage rate is rigid only if the
level of effective demand is fixed. Hence real wage rigidity does not represent
either a prominent aspect in the functioning of the labour market or, still less, a
crucial point in explaining unemployment.6
To sum up, if we are looking for a concept of labour market rigidity in
Keynes’s General Theory, it refers to nominal wages. Nevertheless, although
various (old and new) Keynesian economists have emphasized such rigidities
as being somehow responsible for Keynes’s most important results, in his own
view nominal wage rigidity was not the main source of unemployment and, as
a consequence, nominal wage cuts were not the proper cure for it (and they
might not be a cure at all).
6The recent micro-foundation of The General Theory proposed by Farmer
(forthcoming) goes exactly in the same direction.
3. Real Wage and Contract Rigidity in New Keynesian
Models of the Labour Market
Although New Keynesian theories include both nominal and real wage (and
price) rigidities, those that deal more directly with involuntary unemployment
as an equilibrium phenomenon refer to real rigidities (e.g. Snowdon, Vane and
Wynarczyk 1994, Chapter 7).7First of all, it is important to stress that New
Keynesian theories of real wage rigidity in labour markets tackle a somewhat
different question than the traditional Keynes (macroeconomic) issue
concerning insufficient aggregate demand: they explain why, regardless of the
level of aggregate demand, labour markets do not clear at the microeconomic
level when there is persistent involuntary unemployment. In such a perspective,
NKE provide different possible explanations which include, most prominently,
implicit contracts, efficiency wage theories and insider-outsider models.
The first new Keynesian attempt to provide microeconomic rationales for
real wage rigidity concerns the implicit contract theory (e.g. Azariadis 1975;
Baily 1974; Gordon 1974). Within this theory, firms are assumed to be in a
better position to absorb risk than workers. Technically speaking, the latter are
risk-averse and they would like to be provided with insurance against
fluctuations in income and consumption. As a consequence, if financial
markets cannot be used to provide insurance, then efficient (implicit) labour
contracts can be designed so that firms provide it in the form of stable (or rigid)
wages. Although contracts to insure employees’ earnings have some
7Indeed, the earliest NKE attempts to provide consistent microeconomic
foundations to Keynesian outcomes referred to nominal wage rigidity. In particular,
the long-term and staggered wage contract models, initially proposed by Fischer
(1977), Phelps and Taylor (1977) and Taylor (1980), pointed out that the presence of
explicit (or implicit) labour contracts predetermining the nominal wage for an agreed
period can generate sufficient nominal wage inertia. However, a criticism levelled at
this literature is that the time between renegotiations is exogenously determined. Thus
critics have pointed out that the existence of such contracts and their expiry dates are
not explained by sound microeconomic principles. Moreover, and more importantly
for our discussion, the main goal of such models was to explain macroeconomic
fluctuations and non-neutrality of money, while they dealt only incidentally with the
presence of involuntary unemployment and its persistence over time as an equilibrium
outcome.
10 MARCO GUERRAZZI -NICOLA MECCHERI
characteristics that are promising for understanding empirical evidence on
wage behaviour (e.g. Malcomson 1999), they are not enough to explain
involuntary or Keynesian unemployment. For instance, Gottfries (1990)
pointed out that the theory of implicit contract is at the very best able to explain
why firms do not cut wages and lay off their employees in recessions, but it
cannot explain why firms do not hire new workers at lower wages.8Changes in
unemployment are related to differences between layoff and hiring. Hence a
theory of unemployment must be able to explain why, during recessions, hiring
rates fluctuate so as to exacerbate unemployment rates, rather than working to
clear the labour market. In this regard, efficiency wages and insider-outsider
theories provide some more convincing answers. In a theoretical framework
with asymmetric information, efficiency wage models (e.g. Akerlof and Yellen
1986; Weiss 1990) describe several reasons why cutting wages adversely
affects the quality or productivity of labour and increases, in the end, its cost
measured in terms of efficiency units. The most important versions of this story
focus on the effect on the quality distribution of workers hired (the adverse
selection effect) and the effect on the performance of individual workers (the
incentive or moral hazard effect). Finally, in insider-outsider theories (e.g.
Solow 1985; Lindbeck and Snower 1990), insiders (incumbent workers) have
some power in determining, at least partially, firm’s wage and employment
decisions due to the presence of labour turnover costs and the possibility of
affecting the motivations of newly hired workers. Since it is costly for a firm to
exchange insiders for outsiders (unemployed workers), insiders can extract a
share of the economic rent generated by such factors. Moreover, since in these
models real wages are (downwardly) rigid, economic shocks may have little or
no effect on the real wage rate, but simply lead to variations in
(un)employment.
Although New Keynesian economists refer to their theories as those
offering a compelling set of explanations to “the center-pieces of Keynesian
explanations of unemployment”, namely “the failure of wages to adjust with
8Now it is widely recognized that implicit contract theory is not even able to
provide a completely convincing explanation of layoffs either (e.g. Arnott, Hosios and
Stiglitz 1988).
sufficient speed to clear labour markets” (Stiglitz 1992, p. 296; Greenwald and
Stiglitz 1987, p. 121; see also, in the same vein, Ball, Mankiw and Romer
1988, p. 2), as already noted, there are substantial differences between
Keynes’s own theory and the New Keynesian models outlined above. While
Keynes did not concentrate on real wage rigidity, such rigidity is the main
focus of new Keynesian models that aim to explain the persistence of
involuntary unemployment over time. Contracts to provide insurance (stabilize
workers’ consumption), motivate employees or attract high quality applicants
are necessarily concerned with real earnings (wages). Similarly, earnings rents
for insiders with respect to outsiders clearly refer to real wages. By contrast,
they have little to say about nominal wage rigidities, since they are perfectly
consistent with flexible nominal wages (and prices), and appending a monetary
sector to such models, without any further complications, would leave the real
(non-Walrasian) equilibrium unchanged.9Moreover, in these models, real
wage rigidity is due to optimal (equilibrium) choices of rational firms and
workers. Thus policies to reduce the real wage rate must address changes in
microeconomic incentives for them (e.g. modifying social institutions in the
labour markets, increasing labour productivity, reducing insiders’ power, etc.),
while, in this direction, the role (if any) of aggregate demand is left in the
background or not considered at all. As a consequence, unemployment in such
models, due to a real wage rate which is too high compared to its market-
clearing value (without any clear reason for this, which can be connected to
effective demand deficiency), is more similar to the classical than Keynesian
concept of unemployment.
Given the main focus of this paper, i.e., presenting an overview of the
changes which the concept of labour market rigidity has theoretically
experienced over time, it is also interesting to note that some new Keynesian
scholars, most notably Stiglitz (1992), have emphasized that contract rigidities,
far more than wage rigidities, is the main concept for the explanation of
9Indeed some contributions in the efficiency wage literature are compatible with
both real and nominal wage rigidity. We refer to turnover and sociological models
(e.g. Stiglitz 1985; Akerlof 1982), in which relative (instead of absolute) wages are the
key factor for reducing labour costs.
12 MARCO GUERRAZZI -NICOLA MECCHERI
equilibrium unemployment (and macroeconomic fluctuations). While contracts
are not very interesting in a frictionless Walrasian setting with a complete set
of markets and perfect information, they play a crucial role in models in which
markets are incomplete and information is imperfect. As a consequence, in this
context, moral hazard, adverse selection and hold-up issues (e.g. Williamson
1985) prove important, and providing risk-averse agents with insurance
becomes non-trivial. However, for the same reasons, namely transaction costs
and bounded rationality, for which markets are imperfect, contracts are also
incomplete and costly to enforce. These limitations of contracts can produce
major consequences: in the absence of external enforcement (due to contractual
incompleteness), contracts, to be effectively carried out, must be self-enforcing
and this requires (the persistence of) rents. For instance, whenever monitoring
workers’ effort is costly and effort-contingent labour contracts are
unenforceable because effort is not verifiable by a court, rents will be required
to motivate workers. Involuntary unemployment is a possible way to provide
them, as it is in the standard shirking version of the efficiency wage theory due
to Shapiro and Stiglitz (1984). This is because the present discounted value of
real wage rates for an employed worker is higher than that for an unemployed
one. This makes firing more costly and provides stronger incentives for
employees to work hard.10
In this context, contract rigidity, which parallels contractual
incompleteness, manifests itself in determining frictions and lags for
contractual innovations, even when they might be welfare-enhancing. Agency
theory, for instance, suggests that, even if workers’ effort is not verifiable,
incentive-schemes, such as self-enforcing bonus or tournaments, do exist and
may be adopted to motivate workers without the need of involuntary
unemployment (e.g. Meccheri 2005). Contract rigidity, largely due to
transaction costs, may prevent such contractual arrangements being
10 As emphasized by Stiglitz (1992), contractual problems in capital and financial
markets parallel those in the labour market. Indeed, financial market imperfections
play a key role in some new Keynesian theories of macroeconomic fluctuations (e.g.
Greenwald and Stiglitz 1993).
implemented, contributing to make involuntary unemployment a persistent (or
an equilibrium) phenomenon.
To conclude, the concept of contract rigidity is useful for gaining insights
into the sources of real wage rigidity, which, in our opinion, remains the key
factor in explaining unemployment in NKE. In some sense, contract rigidities
can be considered the operative device for implementing real wage (and price)
rigidities. As emphasized by Stiglitz, maintaining full employment in
economies characterized by great instability would presumably require large
variations in real prices (wages, interest rates) and “[c]ontractual
incompleteness [or rigidity] and the fact that wages, prices and interest rates
are rent-based help to explain why those adjustments do not occur, or occur
very slowly” (Stiglitz 1992, pp. 309-310).
4. From Contract Rigidities to Labour Market Rigidities
The above explanation of unemployment grounded on real wage and contract
rigidities served as an institutional background for the so-called “wage-gap
hypothesis”. In the early and mid 1980s, especially in Europe, this
controversial hypothesis constituted one of the main explanations for the poor
economic performance in the period immediately after the two oil shocks (e.g.
Bruno and Sachs 1985). According to the wage-gap hypothesis real wage rates
in Europe – and to a lesser extent in the US – had outrun productivity by
leading to low profitability, low investments and high (low) unemployment
(employment). The theoretical underpinnings of such a proposition are indeed
quite straightforward: a downward sloped labour demand coupled with any
possible source of real wage rigidity that – in the case of a negative shock –
14 MARCO GUERRAZZI -NICOLA MECCHERI
prevents the adjustment of remunerations to their full employment level is able
to immediately provide a micro-founded proof of the wage-gap theorem. 11
In spite of the huge theoretical efforts provided to offer micro-founded
reasons for real wage stickiness vis-à-vis persistent involuntary unemployment,
the wage-gap hypothesis was mainly refuted on empirical grounds.
Specifically, at the same time in which sticky wages were indicated as the main
culprit for massive unemployment, there began a considerable distributional
shift from wages to profits (e.g. Atkinson 1999). This, on turn, led to a sharp
decrease in the wage share that was not followed by a corresponding reduction
in the unemployment rates. By contrast, the second half of the 1980s saw the
concept of hysteresis reaching its peak of popularity (e.g. Blanchard and
Summers 1986). Obviously, this was inconsistent with the original formulation
of the wage-gap hypothesis.
As is well pointed out in the macroeconomics textbook by Blanchard
and Fischer (1993, Chapter 9), precisely in the period in which the wage-gap
theorem began to show its apparent shortcomings and its rebuttal on empirical
grounds, the mainstream of the economic profession was characterized by a
surprising degree of heterogeneity: there were the economists of (real and/or
nominal) wage rigidities that were usually catalogued under the rubric of the
NKE, briefly reviewed in Section 3; there was also a group of researchers who
were well aware of the Keynesian legacy in macroeconomic modelling but
whose approach to unemployment and macroeconomic fluctuations was much
more heterodox and perhaps less systematic with respect to the NKE. Two
leading examples of this intriguing stream of literature are the theoretical
dynamic contributions by Mortensen (1982) and Diamond (1982).
Mortensen’s (1982) paper considers the issue of property rights and
efficiency in mating, racing and related dynamic games which underlie the
presence of externalities, i.e., situations in which the actions undertaken by a
single economic agent affect the production possibilities or the utility functions
of all the other agents displaced in the economy. Mortensen’s “innovation
11 Downward sloped labour demand straightforwardly arises from the hypothesis of
decreasing returns with respect to labour, an assumption that is usually coupled with
perfect competition.
race” is a game in which a number of competitors attempt to be the first to
make a specific discovery by investing in R&D. The game ends when one of
the competitors actually makes the discovery and becomes an inventor. Under
the assumption that exclusive patents are recognised, the investment rate of all
the competitors may be too large in a Pareto sense because no one accounts for
the capital loss that all but the inventor suffers when the discovery is actually
made.12 However, if the race winner were required to compensate each of the
other players for the value of the expected loss, then the associated Nash
equilibrium solution would be efficient. Instead, Mortensen’s “mating game” is
a game in which each agent seeks a partner of the opposite type, e.g., buyers
and sellers or unemployed workers and employers with vacant jobs. The
instantaneous probability that an agent of a given type is matched to its
counterpart is assumed to be given by the sum between the agent’s own search
effort and a fraction of the total search effort provided by those of the opposite
type. The game ends when two agents of a different type meet in order to
exploit some joint production or an exchange (consumption) opportunity.
Under the assumption that the surplus value of the match is divided equally
between the partners, the search effort of the agents may be too small in a
Pareto sense because no one accounts for the share of the surplus gained by the
future partner to whom he/she will be matched. However, if each agent were to
receive the share of surplus corresponding to his/her own search effort, then the
associated Nash equilibrium solution would be efficient.
Diamond’s (1982) paper can be effectively described by referring to the
tropical island metaphor that is usually exploited to expound the profound
meaning of its formal dynamic framework. Specifically, consider a simplified
multi-person economy in which a certain number of agents walk around the
beach of a tropical island in which there are some coconut trees that differ in
height. At the top of each tree there is a coconut and whenever an agent decides
to pick it, he/she has to incur the disutility (or effort) of climbing up it; the
taller the tree, the higher the disutility of climbing. Once an agent has picked
12 Under the hypothesis of exclusive patents, the inventor can privately exploit all
the value raised by the discovery.
16 MARCO GUERRAZZI -NICOLA MECCHERI
the coconut, he/she has to start to search for another agent in the same position
around the island in order to swap the picked coconut because eating fruits
directly taken from trees is assumed to be a taboo.13 Whenever the agent finds
a trading partner, they eat the picked coconuts and start another search for trees
with fruits. Obviously, this tale can be used as an extended metaphor for a
model economy in which there might be coordination failures. In fact,
Diamond (1982) suggests that in environments like that described above, there
might be multiple steady-states – or different natural rates of unemployment in
Friedman’s (1968) words – with different levels of activity in spite of perfect
wage flexibility and the absence of any price misperception. Specifically, there
might be low-level equilibria in which agents decide to climb only up short
trees so that it will be difficult to find trading partners. By contrast, there might
be high-level equilibria in which agents are also willing to climb up tall trees
such that it will be quite easy to find a trading partner.
The implementation of the suggestions put forward by Mortensen (1982)
and Diamond (1982) into a genuine macroeconomic framework came along
with a certain impatience for the Walrasian setting implicitly revisited by the
NKE economists who stressed the role of real wage rigidity in explaining
persistent involuntary unemployment. This argument is well described by the
following passage by Lucas: “If we are serious about obtaining a theory of
unemployment, we want a theory about unemployed people, not unemployed
‘hours of labor services’; about people who look for jobs, hold them, lose them,
people with all the attendant feeling that go along with these events. Walras’
powerfully simple scenario, at least with the most obvious choice of
‘commodity space’ cannot give us this, with cleared markets or without them”
(Lucas 1987, p. 53). The straightforward interpretation of this piece is that it
seems quite difficult to model the labour market as a simple (spot) auction
market in which real wage and employment are jointly determined through the
interaction of labour supply and labour demand.
13 This assumption is meant to represent the advantages of specialised production
and trade over self-sufficiency.
5. Search Models of Equilibrium Unemployment and
Labour Market Institutions
Drawing mainly on the works by Diamond (1982) and Mortensen (1982),
Pissarides (1985; 2000) built and popularized the so-called search/matching
framework or transactional approach to unemployment.14 According to a
widespread interpretation, and in sharp contrast to the NKE approach, the
unemployment equilibrium that emerges and persists in search models is not
the result of nominal and/or real rigidities, but a consequence of what is usually
labelled as labour market (institutions) rigidities. As suggested by Solow
(1998, p. 190), under this generic rubric we might find labour market
institutions such as excessive unemployment-insurance benefits, restrictions on
the freedom of employers to hire and fire, tightly regulated hours of work,
excessively generous compensations for overtime work, excessively strong
trade unions that protect incumbent workers against competition and control
the flow of work at the side of production and perhaps too stringent statutory
health and safety regulations. In general, labour market rigidities result in all
the frictions associated to specific institutions that, in addition to promoting
certain social purposes, allow unemployed workers and vacant jobs posted by
firms to coexist in equilibrium.15 Moreover, such frictions do not necessarily
(or they do not seem to) imply real wage rigidity.
In the macroeconomic search framework the actual operation of labour
market rigidities (or frictions) is summarised by an exogenous matching
function, i.e., a formal device similar to a production function that matches
unemployed searching workers with employers with vacant jobs by taking into
account the trading externalities faced by each parts. On the one hand,
unemployed searching workers face a “thick” market externality in the sense
14 See also Mortensen and Pissarides (1994).
15 Obviously, in a Walrasian setting this simultaneity will be hard to explain in a
consistent manner.
18 MARCO GUERRAZZI -NICOLA MECCHERI
that the higher the employment level, the easier it is to find a vacant job. On the
other, employers with vacant jobs face a “thin” market externality in the sense
that the lower the employment level, the easier it is to fill an open vacancy.16
The corresponding matching probabilities arise from the properties of the
matching function (see Petrongolo and Pissarides (2001) for a survey).
Under the assumption of a constant instantaneous job separation rate,
i.e., an exogenous hazard rate for employment contracts, the matching function
can also be used to derive the out-of-equilibrium dynamics of the
unemployment rate. Moreover, whenever the matching function displays
constant returns to scale, an assumption that the empirical literature has found
hard to reject (e.g. Blanchard et al. 1989), it may be shown that the stationarity
locus of this dynamic law defines a negative equilibrium relationship between
job vacancies and unemployment usually labelled as a Beveridge curve.17
Finally, the actual vacancies-unemployment pair on the Beveridge curve is
selected through the intersection of an upward schedule starting from the origin
that summarises the non-predetermined firms’ decisions concerning vacancy
opening.18 As long as frictions are stringent, i.e., as long as jobless workers and
firms with vacancies can coexist, the equilibrium allocation will entail
persistent unemployment.
Once the match between a searching unemployed worker and a firm
with a vacant job has been made, the economic rents generated by the trading
externalities summarised by the matching function are split between the worker
and his/her employer through a generalised Nash bargaining process that is
meant to represent actual wage negotiations and allows the model to be closed
by deriving a fully-flexible real wage rate. Obviously, as suggested in
16 It is worth noting that the notion of “thin” and “thick market externalities” comes
directly from Diamond’s (1982) contribution.
17 In Full Employment in a Free Society, Beveridge (1944) defined full
employment as a state of affairs in which the number of vacant jobs is equal to the
number of unemployed workers. As a consequence, in a vacancy-unemployment
diagram, the full employment allocation would be found at the intersection between
the Beveridge curve and a 45-degree line from the origin. A negative equilibrium
relationship between job vacancies and unemployment was derived by Hansen (1970)
from more primitive assumptions on the frictions of an auction labour market.
18 From a formal point of view, this schedule is obtained by imposing the
stationarity of the vacancy-unemployment ratio.
Mortensen’s (1982) mating game, whenever the surplus share assigned to each
part differs from the corresponding search effort, the equilibrium allocation is
not Pareto-efficient. 19 Generally speaking, the higher (lower) the workers’
bargaining power, the higher (lower) the equilibrium real wage rate and – for a
given value of the exogenous separation rate – the lower (higher) the vacancy
rate and the higher (lower) the unemployment rate.
The central message underlying the search framework for the
explanation of unemployment has been widely recognized. For example, the
OECD (1994) Jobs Study pointed to labour market rigidities as one of the main
reasons for the different unemployment patterns recorded worldwide.
Specifically, labour markets with higher (lower) degrees of rigidity should also
have higher (lower) unemployment and lower (higher) employment. In
addition, since the 1990s, the view according to which labour market rigidities
– instead of excessive or rigid real wage rates – are to be indicated as unwanted
barriers to higher employment and growth has also found credence among
central bankers. A good example is given by the remarks made by the Federal
Reserve Governor Laurence H. Meyer before the 1999 World Economic
Forum when he explicitly stated that “European policymakers will now have to
focus more on structural changes needed to deal with Europe’s labor market
rigidities in order to ensure continued healthy economic expansion in the
longer term” (Meyer 1999).
6. The “Unexpected” Role of Real Wage Rigidity in Search
Models
In recent years, the Mortensen-Diamond-Pissarides (MDP) search and
matching model has become the standard theory of equilibrium unemployment.
The model has proved attractive for a number of reasons. First, it offers an
19 The condition for the implementation of Pareto efficiency in the search
framework is discussed by Hosios (1990).
20 MARCO GUERRAZZI -NICOLA MECCHERI
appealing description of how (un)employment evolves over time. Second, it is
analytically tractable and has an intuitive comparative statics. Finally, it can
easily be adapted to study a number of labour market policy issues, such as
unemployment insurance, firing restrictions and wage bargaining regulation.
Taking such theoretical successes into account, it seems almost natural
to ask whether the model is also able to match the actual behaviour of the main
variables involved, i.e., unemployment, job vacancies and real wage rates.
Indeed, there is a very influential paper (Shimer 2005) that questions the
predictive power of the standard MDP matching model by arguing that its
theoretical framework cannot generate the observed business-cycle-frequency
fluctuations in unemployment and vacancies in response to real productivity
shocks of plausible magnitude.
Using quarterly data from different sources, Shimer (2005) measures
the autocorrelation and the volatility of unemployment, job vacancies and real
wage rates for the US economy in the period from 1951 to 2003. One of the
most striking findings of this empirical exploration is that the standard
deviation of the vacancy-unemployment ratio – usually referred to as the
labour market tightness indicator – is almost 20 times as large as the standard
deviation of real wage rates over the period under examination. The so-called
“Shimer’s puzzle” arises from the fact that the standard MDP model, in which
real wage rates are the outcome of a generalized Nash bargaining process,
predicts that the two variables (labour market tightness and real wage rate)
should have nearly the same volatility. The intuition for this result is that a real
wage rate bargained between the worker and the employer according to the
Nash rule absorbs a great deal of productivity shocks. As a consequence,
vacancies and unemployment are only partially affected by the stochastic
disturbances that affect the real value of produced output.
An initial important stream of contributions, such as Hall (2005a;
2005b) and the very Shimer (2005), sought to reconcile the MDP matching
model to data by introducing some real wage rigidity in order to generate a
stronger amplification of real shocks, i.e., in order to amplify the effects of
productivity shocks on labour market tightness indicators. Despite taking
different routes, the authors in question appear to arrive at similar conclusions.
Hall (2005a; 2005b) embeds real wage stickiness within the MDP
model by observing that productivity shocks cause a movement in the
boundaries of the so-called “bargaining set” for wage determination, i.e. the
gap between the minimum wage acceptable for the worker and the maximum
wage acceptable to the corresponding employer. Any real wage rate inside the
bargaining set will result in the efficient formation of a match in the sense that
no worker-employer pair has an unexploited opportunity for mutual
improvement. 20 Given the operation of the search frictions summarised by the
matching function, it is also shown that the typical bargaining set is a non-
empty thick set in which the Nash bargaining rule acts just as an equilibrium
selection device. More precisely, the Nash bargaining process sets the wage at
a weighted average of the limiting wages, with a fixed weight over time.
Obviously, any wage norm that establishes a sticky real wage rate that varies
over time, but not by as much as does the Nash wage, will represent another
legitimate equilibrium selection device if the implied remuneration path is
always constrained inside the corresponding bargaining set. 21 Simulating a
matching economy in which the real wage follows a wage norm of that kind,
Hall (2005a; 2005b) shows that the MDP model can be easily reconciled with
Shimer’s puzzling empirical findings.
By contrast, Shimer (2005) shows that the MDP model can be
reconciled with the US empirical evidence without abandoning the flexible
Nash bargaining solution but simply assuming that the workers’ bargaining
power – usually assumed to be fixed – moves counter-cyclically. Obviously,
this might generate a fairly stable real wage rate because in expansion
(recessions) remuneration would tend to go down (up) because workers would
become contractually weaker (stronger). However, Shimer (2005) fails to
provide any micro-founded reason for such an unusual link.
20 As a consequence, Hall (2005a; 2005b) provides also an answer to Barro’s
(1977) condemnation of sticky-wage models by invoking an inefficiency that rational
agents could easily avoid.
21 To be precise, Hall (2005a, p. 64) suggests that this result can be achieved
through a partially smoothed wage and/or an adaptive wage.
22 MARCO GUERRAZZI -NICOLA MECCHERI
If the contributions briefly reviewed in this section go in the right
direction, we can conclude that even the MDP search model needs some wage
(and price) rigidity in order to explain the behaviour and persistence of
unemployment in real world economies. This finding suggests some interesting
considerations. At a first approximation, it seems hard to disentangle labour
market rigidities (or frictions) from real wage stickiness. In fact, as suggested
by Stiglitz (1992) and already stressed in Section 3, the existence and
persistence of the economic rents generated by the frictions summarised by the
matching function are likely to be reinforced by the existence and persistence
of wage and price rigidities. Second, real wage stickiness is quite likely to be
called in to play some meritorious role that has to be traded by means of a
social welfare function against higher (lower) unemployment (employment). In
fact, a number of the labour market institutions responsible for the frictions that
allow unemployed workers and vacant jobs to coexist in equilibrium are
intended – at least in principle – to promote some desirable social purposes. As
a consequence, if real wage stickiness is the device that effectively allows their
maintenance, workers – and to some extent also entrepreneurs – may well
resist real wage cuts in order to maintain what we might call a “fair
equilibrium”. This concept was pioneered by Marshall (1887) and revisited, in
a game-theoretical framework, by Solow (1990). In the labour market, a fair
equilibrium is an allocation in which unemployed workers do not underbid
incumbent workers because they expect to be employed in another (future)
period of time, in which they will receive a real wage rate higher than their
opportunity cost of labour. 22 According to Solow (1990), the threat that allows
such an equilibrium strategy to be maintained is the “brutish state” that would
prevail in a free-for-all (Walrasian) competitive equilibrium.
Finally, some flavour of attractiveness for real wage stickiness also
comes from more technical considerations. As suggested by Hahn and Solow
(1986; 1995), a monetary OLG economy with perfect real wage flexibility –
and nothing prevents extending this result to a matching economy emended to
22 Obviously, this kind of “cooperative” equilibrium requires that the gains from
pure insider bargaining are large enough and the future is not too heavily discounted.
include money and inter-temporal consumption choices – can be so
intrinsically unstable that the raising of a generic real shock may lead to
endless or (worse) diverging fluctuations in the real interest rate that bring
about meaningless swings in the inter-temporal distribution of welfare. 23
Therefore, even if they ensure continuous full employment, such fluctuations
have no claim to be equitable and are more likely to be seen as undesirable.
Indeed, Hahn and Solow (1986; 1995) show that there exists an optimal policy
that minimizes the magnitude of fluctuations and that such a policy, combining
monetary and fiscal factors, acts essentially as a wage-price stabilizer.
7. Concluding remarks
The aim of this paper was twofold: firstly, it surveyed and critically discussed
partial changes in the relevant concept of labour market rigidity/flexibility,
particularly in relation to unemployment (e.g. flexibility of nominal or real
wage, of labour contracts and labour market institutions). Secondly, it critically
assessed the factors that lead labour market rigidities, stressed by the search
framework popularized by Pissarides (1985; 2000), to challenge the New
Keynesian wage rigidity approach in the common-sense explanation of
equilibrium unemployment. Special importance was attached to the
macroeconomic modelling strategies pursued by these two streams of
literature. Finally, following the empirical insights in recent contributions by
Shimer (2005) and Hall (2005a; 2005b), we addressed the tricky role of wage
rigidity inside the search theoretical framework.
One of the most important findings of our critical discussion about the
concept of labour market rigidity is probably the two-fold role played by real
wage rate stickiness in explaining unemployment (and adverse business
23 In this framework there are eligible values of the capital share, the consumption
elasticity of substitution and the money circulation velocity such that the stationary
solution is unstable. Formal proofs are given by Guerrazzi (2007).
24 MARCO GUERRAZZI -NICOLA MECCHERI
fluctuations).24 On the one hand, real wage stickiness is the device that allows
the creation and persistence of the economic rents required for the actual
functioning of labour market institutions that might perform meritorious social
purposes. On the other, labour market institutions create frictions that are
responsible for equilibrium unemployment. As a consequence, any attempt to
introduce higher flexibility in the form of lower real wage rates or – more in
general – labour market deregulation may well alleviate unemployment and
boost employment in the short run, but it may also lead to undesired social
outcomes. For example, a recent work by Bertola and Lo Prete (2009) suggests
that all over the major OECD countries, labour market deregulation is
associated with higher employment and faster growth but also with lower
consumption and increasing income inequality. Along these lines, Boeri (2008)
notes that in Europe labour market deregulation led to an increase in
employment and a decrease in unemployment rates but this came without any
significant increase in GDP levels and with a deterioration of social cohesion.
Such arguments may raise some major doubts about the possibility of such
policies to stimulate and raise employment levels in a longer-run perspective.
Moreover, if stable real wage rates – via labour market institutions – help
pursue meritorious social purposes such as income equality and cohesion, it
might be worth preserving them by means of policies (e.g., investing in
infrastructures, productive capital and active labour market policies) that lead
to increasing productivity in order to mitigate their costs in terms of
unemployment.
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Discussion Papers - Dipartimento Scienze Economiche – Università di Pisa
1. Luca Spataro, Social Security And Retirement Decisions In Italy, (luglio 2003)
2. Andrea Mario Lavezzi, Complex Dynamics in a Simple Model of Economic
Specialization, (luglio2003)
3. Nicola Meccheri, Performance-related-pay nel pubblico impiego: un'analisi
economica, (luglio 2003)
4. Paolo Mariti, The BC and AC Economics of the Firm, (luglio- dicembre 2003)
5. Pompeo Della Posta, Vecchie e nuove teorie delle aree monetarie ottimali, (luglio
2003)
6. Giuseppe Conti, Institutions locales et banques dans la formation et le développement
desdistricts industriels en Italie, (luglio 2003)
7. F. Bulckaen - A. Pench - M. Stampini, Evaluating Tax Reforms without utility
measures : the performance of Revenue Potentialities, (settembre 2003, revised June
2005)
8. Luciano Fanti - Piero Manfredi, The Solow’s model with endogenous population: a
neoclassical growth cycle model (settembre 2003)
9. Piero Manfredi - Luciano Fanti, Cycles in dynamic economic modelling (settembre
2003)
10. Gaetano Alfredo Minerva, Location and Horizontal Differentiation under Duopoly
with Marshallian Externalities (settembre 2003)
11. Luciano Fanti - Piero Manfredi, Progressive Income Taxation and Economic Cycles: a
Multiplier-Accelerator Model (settembre 2003)
12. Pompeo Della Posta, Optimal Monetary Instruments and Policy Games Reconsidered
(settembre 2003)
13. Davide Fiaschi - Pier Mario Pacini, Growth and coalition formation (settembre 2003)
14. Davide Fiaschi - Andre Mario Lavezzi, Nonlinear economic growth; some theory and
cross-country evidence (settembre 2003)
15. Luciano Fanti , Fiscal policy and tax collection lags: stability, cycles and chaos
(settembre 2003)
16. Rodolfo Signorino- Davide Fiaschi, Come scrivere un saggio scientifico:regole
formali e consigli pratici (settembre 2003)
17. Luciano Fanti, The growth cycle and labour contract lenght (settembre 2003)
18. Davide Fiaschi , Fiscal Policy and Welfare in an Endogenous Growth Model with
Heterogeneous Endowments (ottobre 2003)
19. Luciano Fanti, Notes on Keynesian models of recession and depression (ottobre 2003)
20. Luciano Fanti, Technological Diffusion and Cyclical Growth (ottobre 2003)
21. Luciano Fanti - Piero Manfredi, Neo-classical labour market dynamics, chaos and the
Phillips Curve (ottobre 2003)
22. Luciano Fanti - Luca Spataro, Endogenous labour supply and Diamond's (1965)
model: a reconsideration of the debt role (ottobre 2003)
23. Giuseppe Conti, Strategie di speculazione, di sopravvivenza e frodi bancarie prima
della grande crisi (novembre 2003)
24. Alga D. Foschi, The maritime container transport structure in the Mediterranean and
Italy (dicembre 2003)
25. Davide Fiaschi - Andrea Mario Lavezzi, On the Determinants of Growth Volatility: a
Nonparametric Approach (dicembre 2003)
26. Alga D. Foschi, Industria portuale marittima e sviluppo economico negli Stati Uniti
(dicembre 2003)
27. Giuseppe Conti - Alessandro Polsi, Elites bancarie durante il fascismo tra economia
regolata ed autonomia (gennaio 2004)
28. Annetta Maria Binotti - Enrico Ghiani, Interpreting reduced form cointegrating
vectors of incomplete systems. A labour market application (febbraio 2004)
29. Giuseppe Freni - Fausto Gozzi - Neri Salvadori, Existence of Optimal Strategies in
linear Multisector Models (marzo 2004)
30. Paolo Mariti, Costi di transazione e sviluppi dell’economia d’impresa (giugno 2004)
31. Domenico Delli Gatti - Mauro Gallegati - Alberto Russo, Technological Innovation,
Financial Fragility and Complex Dynamics (agosto 2004)
32. Francesco Drago, Redistributing opportunities in a job search model: the role of self-
confidence and social norms (settembre 2004)
33. Paolo Di Martino, Was the Bank of England responsible for inflation during the
Napoleonic wars (1897-1815)? Some preliminary evidence from old data and new
econometric techniques (settembre 2004)
34. Luciano Fanti, Neo-classical labour market dynamics and uniform expectations: chaos
and the “resurrection” of the Phillips Curve (settembre 2004)
35. Luciano Fanti – Luca Spataro, Welfare implications of national debt in a OLG model
with endogenous fertility (settembre 2004)
36. Luciano Fanti – Luca Spataro, The optimal fiscal policy in a OLG model with
endogenous fertility (settembre 2004)
37. Piero Manfredi – Luciano Fanti, Age distribution and age heterogeneities in economic
profiles as sources of conflict between efficiency and equity in the Solow-Stiglitz
framework (settembre 2004)
38. Luciano Fanti – Luca Spataro, Dynamic inefficiency, public debt and endogenous
fertility (settembre 2004)
39. Luciano Fanti – Luca Spataro, Economic growth, poverty traps and intergenerational
transfers (ottobre 2004)
40. Gaetano Alfredo Minerva, How Do Cost (or Demand) Asymmetries and Competitive
Pressure Shape Trade Patterns and Location? (ottobre 2004)
41. Nicola Meccheri, Wages Behaviour and Unemployment in Keynes and New
Keynesians Views. A Comparison (ottobre 2004)
42. Andrea Mario Lavezzi - Nicola Meccheri, Job Contact Networks, Inequality and
Aggregate Output (ottobre 2004)
43. Lorenzo Corsini - Marco Guerrazzi, Searching for Long Run Equilibrium
Relationships in the Italian Labour Market: a Cointegrated VAR Approach (ottobre
2004)
44. Fabrizio Bulckaen - Marco Stampini, Commodity Tax Reforms In A Many
Consumers Economy: A Viable Decision-Making Procedure (novembre 2004)
45. Luzzati T. - Franco A. (2004), “Idrogeno fonti rinnovabili ed eco-efficienza: quale
approccio alla questione energetica?”
46. Alga D. Foschi , “The coast port industry in the U.S.A: a key factor in the process of
economic growth” (dicembre 2004)
47. Alga D. Foschi , “A cost – transit time choice model: monomodality vs.
intermodality” (dicembre 2004)
48. Alga D. Foschi , “Politiques communautaires de soutien au short sea shipping (SSS)”
(dicembre 2004)
49. Marco Guerrazzi, Intertemporal Preferences, Distributive Shares, and Local Dynamics
(dicembre 2004)
50. Valeria Pinchera, “Consumo d’arte a Firenze in età moderna. Le collezioni Martelli,
Riccardi e Salviati nel XVII e XVIII secolo” (dicembre 2004)
51. Carlo Casarosa e Luca Spataro, “Propensione aggregata al risparmio, rapporto
ricchezza-reddito e distribuzione della ricchezza nel modello del ciclo di vita
"egualitario": il ruolo delle variabili demografiche” (aprile 2005)
52. Alga D. Foschi – Xavier Peraldi – Michel Rombaldi, “Inter – island links in
Mediterranean Short Sea Shipping Networks” (aprile 2005)
53. Alga D. Foschi (2005), “Lo shipping, la cantieristica ed i porti nell’industria
marittima” (aprile 2005)
54. Marco Guerrazzi, “Notes on Continuous Dynamic Models: the Benhabib-Farmer
Condition for Indeterminacy” (settembre 2005)
55. Annetta Binotti e Enrico Ghiani, "Changes of the aggregate supply conditions in Italy:
a small econometric model of wages and prices dynamics" (settembre 2005)
56. Tommaso Luzzati, “Leggere Karl William Kapp (1910-1976) per una visione unitaria
di economia, società e ambiente” (dicembre 2005)
57. Lorenzo Corsini (2006), “Firm's Entry, Imperfect Competition and Regulation”
58. Mario Morroni (2006), “Complementarities among capability, transaction and scale-
scope considerations in determining organisational boundaries”
59. Mario Morroni (2006), “Innovative activity, substantive uncertainty and the theory of
the firm”
60. Akos Dombi (2006), "Scale Effects in Idea-Based Growth Models: a Critical Survey"
61. Binotti Annetta Maria e Ghiani Enrico (2006), “La politica economica di breve
periodo e lo sviluppo dei primi modelli mocroeconometrici in Italia: dalla vicenda
ciclica degli anni ’60 alla prima crisi petrolifera”
62. Fioroni Tamara (2006), “Life Expectancy, Health Spending and Saving”
63. Alga D. Foschi (2006), “La concentrazione industriale per i sistemi di trasporto
sostenibile: un caso di successo nel Mediterraneo orientale”
64. Alga D. Foschi (2006), “La concentrazione industriale per i sistemi di trasporto
sostenibile
65. Maurizio Lisciandra (2007), “The Role of Reciprocating Behaviour in Contract
Choice”
66. Luciano Fanti e Luca Spataro (2007), “Poverty traps and intergenerational transfers”
67. Luciano Fanti and Luca Spataro (2007), “Neoclassical OLG growth and
underdeveloped, developing and developed countries”
68. Luciano Fanti and Luca Gori (2007), Economic Growth and Welfare in a Simple
Neoclassical OLG Model with Minimum Wage and Consumption Taxes
69. Carlo Brambilla and Giandomenico Piluso (2008), Italian investment and merchant
banking up to 1914: Hybridising international models and practices
70. Luciano Fanti and Luca Gori (2008), Fertility and regulated wages in an OLG model
of neoclassical growth: Pensions and old age support
71. Luciano Fanti and Luca Gori (2008), Neoclassical Economic Growth and Lifetime
Welfare in a Simple OLG Model with Unions
72. Nicola Meccheri (2008), A Note on Noncompetes, Bargaining and Training by Firms
73. Lorenzo Corsini e Elisabetta Olivieri (2008), Technological Change and the Wage
Differential between Skilled and Unskilled Workers: Evidence from Italy
74. Fanti, L. e Gori, L.(2008), ""Backyard" technology and regulated wages in a
neoclassical OLG growth model"
75. Fanti, L. e Gori, L.(2008), "PAYG pensions and economic cycles: Exogenous versus
endogenous fertility economies"
76. Fanti, L. e Gori, L.(2009), "Child policy solutions for the unemployment problem"
77. Fanti, L. e Gori, L.(2009), "Longevity, fertility and PAYG pension systems
sustainability"
78. Fanti, L. e Gori, L.(2009), "On economic growth and minimum wages"
79. Gori, L.(2009), "Endogenous fertility, family policy and multiple equilibria"
80. Lavezzi, A. e Meccheri N.(2009), "Transitions Out of Unemployment: the Role of
Social Networks’ Topology and Firms’ Recruitment Strategies"
81. Fiaschi D. - Romanelli M.(2009), "Nonlinear Dynamics in Welfare and the Evolution
of World Inequality"
82. Fiaschi D. (2009), "Natural Resources, Social Conflict and Poverty Trap"
83. Fiaschi D. e Marsili M.(2009), "Distribution of Wealth and Incomplete Markets:
Theory and Empirical Evidence"
84. Fiaschi D., Lavezzi A.M. and Parenti A.(2009),"Productivity Dynamics across
European Regions: the Impact of Structural and Cohesion Funds"
85. Fiaschi D., Lavezzi A.M. and Parenti A.(2009),"Counterfactual Distribution
Dynamics across European Regions"
86. Gussoni M.(2009),The determinants of inter-¯rms R&D cooperation and partner
selection. A literature overview
87. Conti G. e Scatamacchia R. (2009),Stato di fiducia, crisi finanziarie e crisi politiche
nell’Italia liberale prima del 1914
88. Floridi M., Pagni S., Falorni S. e Luzzati T.(2009),Una valutazione di sostenibilità
delle Regioni Italiane
89. Fanti L. e Spataro L. (2009), Fertility and public debt
90. Manuela Gussoni - Andrea Mangani (2009), The impact of public funding for
innovation on firms'R&D investments: Do R&D cooperation and appropriability
matter?
91. Luciano Fanti and Luca Gori (2009), Endogenous fertility, endogenous lifetime and
economic growth: the role of health and child policies
92. Luciano Fanti and Luca Gori (2009), Endogenous lifetime in an overlapping
generations small open economy
93. Luciano Fanti and Luca Gori (2009), Child policy ineffectiveness in an OLG small
open economy with human capital accumulation and public education
94. Marco Guerrazzi and Nicola Meccheri (2009), From Wage Rigidities to Labour
Market Rigidities: A Turning-Point in Explaining Equilibrium Unemployment?
Redazione:
Giuseppe Conti
Luciano Fanti (Coordinatore Responsabile)
Davide Fiaschi
Paolo Scapparone
E-mail della Redazione: papers-SE@ec.unipi.it
