Efficiency Wages and Labor Mobility in an Open Economy

Author/Editor:

Julio A. Santaella ; Pierre-Richard Agénor

Publication Date:

October 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 93/79

Subject:

English

Publication Date:

October 1, 1993

ISBN/ISSN:

9781451850161/1018-5941

Stock No:

WPIEA0791993

Format:

Paper

Pages:

40

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