The labour market in a Keynesian economic regime: theoretical debate and empirical findings

In a Keynesian mode of thinking wages become the nominal anchor for the price level because unit-labour costs in a closed economy represent the most important factor in determining the price level. The second most important driver of price level changes is the exchange rate. A positive economic regi...

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Bibliographic Details
Published in:Cambridge journal of economics 2009-09, Vol.33 (5), p.949-965
Main Author: Herr, Hansjörg
Format: Article
Language:English
Subjects:
Central banks
Cost reduction
Economic costs
Economic deflation
Economic systems
Economics
Employment
Equilibrium
Fiscal policy
Income distribution
Interest rates
Keynesianism
Labor market
Labor markets
Labour costs
Labour market
Macroeconomics
Monetary policy
Monopolistic competition
Nominal wages
Price level
Price level changes
Price levels
Product differentiation
Productivity
Unit costs
Wage levels
Wages
Wages & salaries
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Summary:In a Keynesian mode of thinking wages become the nominal anchor for the price level because unit-labour costs in a closed economy represent the most important factor in determining the price level. The second most important driver of price level changes is the exchange rate. A positive economic regime includes nominal wage increases according to trend productivity growth as well as the target inflation rate of the central bank, discretionary monetary policy geared towards growth and anti-cyclical fiscal policy. Since the early 1990s nominal wages in the USA and the UK have followed this wage norm to a large extent. But in Germany, wages have increased below this norm or even decreased, and in Japan this effect has been even more extreme. Overall, while Japan and Germany have suffered from dysfunctional economic regimes leading to low growth, the UK and USA have managed a much more positive interaction between wage development, monetary policy and fiscal policy.
ISSN:0309-166X
1464-3545
DOI:10.1093/cje/ben044