GROWTH, UNEMPLOYMENT AND THE WAGE SETTING PROCESS.



2.3 Equilibrium in the Input Markets

Now we define the effective quantity of labor employed in period t as Lte =
min(L
td , Nt). Then unemployment in period t is given by Nt - Lte and the rate
of employment in period t, u
t, by NtNLt.

We define the aggregate saving supply in period t-1, Sts-1, as:
~ _         .. . . _ ~ _ . .. _ . ..

St-1 = Sw,t-1((1 - τt-1)wt-1)Lt-1 + Su,t-1(st-1 )(Nt-1 - Lt-1).    (5)

Recall that aggregate saving in period t-1 is equal to the supply of capital in
period t, K
ts. Thus, we have K0s = K0 and Kts = Sts-1 for all t 1.

Using ( 4) and ( 5) we have that for all t 1:

Ktt = KS(wt-ιt-ι,st-ι,Le-ι,Nt-ι) =

c((1 - τt-1)wt-1Lte-1 + st-1 (Nt-1 - Lte-1))   .              (6)

Equation ( 6) says that the supply of capital in period t, that is, the supply
of saving in period t-1, is equal to aggregate labour income times the saving’s
propensity.

We assume that the interest rate in period t, Rt, balances demand and
supply in at least one of the inputs markets, that is:

Definition 2.3.1 Given wt-1, Lte-1 and wt; Rtt is such that:

Kd = K S(wt-i ,Tt-i,St-i,Le-i,Nt-i )                   (7)

and

Ltd Nt;                                (8)

or

Ltd = Nt                               (9)

Kd Ks(wt-i, Tt-1, st-i,Le-i, Nt-1).                  (10)

Equations ( 7) and ( 8) say that the capital market is in equilibrium and
that there is an excess supply of labor. Equations ( 9) and ( 10) that the labor
market is in equilibrium and that there is an excess supply of capital.

The equilibrium interest rate, Rtt, the competitive wage, wtc , the inputs’
demand functions and the effective quantity of labor employed are given by the
following proposition:



More intriguing information

1. Strategic Planning on the Local Level As a Factor of Rural Development in the Republic of Serbia
2. A Bayesian approach to analyze regional elasticities
3. Großhandel: Steigende Umsätze und schwungvolle Investitionsdynamik
4. Developments and Development Directions of Electronic Trade Platforms in US and European Agri-Food Markets: Impact on Sector Organization
5. SLA RESEARCH ON SELF-DIRECTION: THEORETICAL AND PRACTICAL ISSUES
6. The name is absent
7. The Environmental Kuznets Curve Under a New framework: Role of Social Capital in Water Pollution
8. The name is absent
9. Perceived Market Risks and Strategic Risk Management of Food Manufactures: Empirical Results from the German Brewing Industry
10. Innovation Policy and the Economy, Volume 11