Relative Price Changes, Wages and Unemployment in a Specific Factors Model with Search Frictions |
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| Authors: | Klaus Wälde Pia Weiss |
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| Institution: | University of Dresden, Department of Economics, Germany; Chemnitz University of Technology, Department of Economics, Germany |
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| Abstract: | This paper analyzes the effects of changes in the relative product price on wages and unemployment of a small open economy in a specific factors model characterized by search frictions. It shows that unemployment and wages move in opposite directions, i.e., high unemployment is associated with low wages and low unemployment with high wages. The reason for the employment effect is found to be individual wage bargaining. |
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