Efficiency Wages and Labor Mobility in an Open Economy
The paper analyzes the role of labor market segmentation and relative wage rigidity in the transmission process of macroeconomic shocks in a two-sector optimizing model of a small open economy. The analysis is first conducted in the context of perfect intersectoral labor mobility. The discussion is then extended to consider the existence of short-run constraints on labor movements. The results highlight the role of efficiency considerations in the behavior of sectoral wages. A deflationary policy induces a reallocation of labor across sectors, but has no long-run effect on the unemployment rate.
Year of publication: |
1993-10-01
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Authors: | Santaella, Julio A. ; Agénor, Pierre-Richard |
Institutions: | International Monetary Fund (IMF) |
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