Production, unemployment and wage flexibility in an ICT-assisted economy: A model

Abstract

This paper presents a simple macroeconomic model in which a fall in money wages has contractionary effects on output and employment. As it is well known this argument in itself is not novel: the contractionary effect of a rise in the mark-up is a standard result in Kaleckian models of imperfect competition. The new contribution of this paper lies in the fact that the contractionary effect of a money wage decline is consistent with perfect competition and rationality of economic agents. This result depends on an original specification of the production side and the associated implications for pricing. This specification, which embraces many features of modern production (characterized by a massive use of ICT), represents the first attempt to use Georgescu Roegen's contribution to production analysis within a Keynesian macroeconomic framework.