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Assuming the demand for labor to be a given monotonically decreasing function of the real wage rate, the theory then predicted that, in the long-run equilibrium of the system, labor supply (i.e. population) will rise or fall to the number of workers needed at the subsistence wage.
In Book V of Keynes's theory, Chapter 19 discusses whether wage rates contribute to unemployment and introduces the Keynes effect. Chapter 20 covers mathematical groundwork for Chapter 21, which examines how changes in income from increased money supply affect wages, prices, employment, and profits.
Wage rates were discussed in a criticism of Pigou. [47] In autumn 1933 Keynes's lectures were much closer to the General Theory, including the consumption function, effective demand, and a statement of 'the inability of workers to bargain for a market-clearing real wage in a monetary economy'. [48] All that was missing was a theory of investment.
Following the recession of 2008 real wages globally have stagnated [6] with a world average real wage growth rate of 2% in 2013. Africa, Eastern Europe, Central Asia, and Latin America have all experienced real wage growth of under 0.9% in 2013, whilst the developed countries of the OECD have experienced real wage growth of 0.2% in the same period.
The Theory of Wages is a book by the British economist John Hicks, published in 1932 (2nd ed., 1963). It has been described as a classic microeconomic statement of wage determination in competitive markets.
Similarly, in models of inflation a dynamic equilibrium would involve the price level, the nominal money supply, nominal wage rates, and all other nominal values growing at a single common rate, while all real values are unchanging, as is the inflation rate. [9]
If the trend rate of growth of money wages equals zero, then the case where U equals U* implies that gW equals expected inflation. That is, expected real wages are constant. In any reasonable economy, however, having constant expected real wages could only be consistent with actual real wages that are constant over the long haul.
By showing their workers that they will provide stable real wages, firms secure their loyalty. [1]: 384 Seeing implicit contracts as a poor basis for real wage rigidities, new Keynesian economists sought other explanations. [1]: 384 Efficiency wage theories explain why firms might pay their employees more than the market clearing rate.