Some Implications of Wage Equality in a General Equilibrium Model with Indivisibilities

42 Pages Posted: 30 Aug 2000

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Cemile Sahin

affiliation not provided to SSRN

Date Written: June 2000

Abstract

This paper looks at a general equilibrium model in a setting with indivisible consumer goods, product market power and a labor market distortion. The labor market distortion is due to wages being independent of ability in the indivisible good sector. This independence could be due to a complicated production process that makes ability hard to signal and infer, or due to a commitment to wage equality on the basis of socialist ideology. Technological progress may be counter productive in this setting, so that the decline of socialism may be a result of technological forces. Redistribution may have adverse effects in a less productive economy and beneficial effects in a productive one suggesting that it is a luxury poor countries cannot afford, but that rich ones benefit from. The model can also be interpreted in Keynesian terms as there are multiple equilibria which can be thought of as depression and prosperity.

JEL Classification: D51, O15

Suggested Citation

Krishna, Kala and Sahin, Cemile, Some Implications of Wage Equality in a General Equilibrium Model with Indivisibilities (June 2000). Available at SSRN: https://ssrn.com/abstract=236030 or http://dx.doi.org/10.2139/ssrn.236030

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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Cemile Sahin

affiliation not provided to SSRN

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