Relative Wages, Efficiency Wages, and Keynesian Unemployment

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While modern economic theorists have produced a variety of explanations for the failure of wages to fall in the face of unemployment, Keynes emphasis on relative wages has not been reflected in most contemporary discussions. This short paper suggests that relative wage theories in which workers' productivity depends primarily on their relative wage provide the best available apparatus for understanding actual unemployment and its fluctuations. Such theories are very closely related to the efficiency wage theories that have received widespread attention in recent years.

Published: The American Economic Review, Vol. 78, No. 2, pp. 383-388, (May 1988).

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