Macroeconomic stability in a flexible labor market |
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Abstract: | This paper examines the relationship between labor market flexibility and macroeconomic stability from a post‐Keynesian perspective. Considering two aspects of labor market flexibility, employment flexibility and real wage flexibility, I adopt the flex–output model to discuss employment flexibility and extend it by incorporating real wage dynamics induced from a wage–price Phillips curve to discuss real wage flexibility. Simulation of the model suggests that employment flexibility possibly increases instability of an economy whereas real wage flexibility reduces it. |
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