Abstract
Wage flexibility is usually defined as the responsiveness of wages to market disequilibrium. But market disequilibrium can be defined in different ways. One can accept a non-Walrasian definition of equilibrium, the market being in equilibrium when agents have no incentive to change their decisions, even if a change of wages can improve their position. To study the behavior of wages as an equilibrating variable, it is appropriate to consider Walrasian demand and supply functions, in which wages are allowed to move in each period in a direction to restore equilibrium between Walrasian demand and supply, even when agents experience restrictions and take notice of these restrictions when making decisions. The degree of wage flexibility is most often measured as the amount of equilibrating change that took place in a certain period. In most wage equations wage flexibility is measured by the coefficient of the unemployment variable, which links the equilibrating change in the wage variable to the degree of market disequilibrium. The equalization of market disequilibrium with unemployment poses some problems.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Beckerman, W.; Jenkinson, T. "How Rigid are Wages Anyway?" in W. Beckerman, ed.,Wage Rigidity and Unemployment, Baltimore, MD: The John Hopkins University Press, 1986, pp. 21–42.
Drèze, J. H.; Bean, L.Europe's Unemployment Problem, Cambridge, MA: The MIT Press, 1991.
Fuller, W. A.Introduction to Statistical Time Series, New York, NY: Wiley & Sons, 1976, p. 470.
Goubert, L. "Arbeidsmarktbeleid en werkloosheidstheorieën," unpublished paper, 1992.
Heylen, F. "Labor Market Structures, Labor Market Policy, and Wage Formation in the OECD Labor,"Review of Labor Economics and Industrial Relations, 7, 2, 1993, pp. 25–51.
Jackman, R. "Advanced Industrial Countries: Unemployment and Wage Inequality in OECD-Countries," draft paper prepared under the ILO/UNDP project "Economic Policy an Employment," Expert Meeting on Economic Policies and Employment May 26–27, 1994, ILO, Geneva.
Johansen, S. "Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vector Autoregressive Models,"Econometrica, 59, 1991, pp. 1551–80.
Layard, R.; Nickell S.; Jackman R.Unemployment, Macroeconomic Performance, and the Labor Market, Oxford University Press, 1991.
Lilien, D. M. "Econometric Views Micro TSP," Irvine, CA: Quantitative Micro Software, 1994.
Organization for Economic Cooperation and Development,Employment Outlook, 1993.
Author information
Authors and Affiliations
Additional information
The authors wish to thank Freddy Heylen of the University of Gent for helpful comments.
Rights and permissions
About this article
Cite this article
Goubert, L., Omey, E. An alternative measure of wage flexibility. International Advances in Economic Research 2, 199–221 (1996). https://doi.org/10.1007/BF02295249
Issue Date:
DOI: https://doi.org/10.1007/BF02295249