Brief von Kurt Rothschild an Fabio Petri

Rothschild, Kurt W.

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Correspondence

Document type:: Correspondence

Collection:: Kurt W. Rothschild Collection

Title:: Brief von Kurt Rothschild an Fabio Petri

Author:: Rothschild, Kurt W.

Recipient:: Petri, Fabio

Scope:: Typoskript, 1 Blatt, 2 Seiten

Place of publication:: ohne Ort

Year of publication:: 1990-10-02

Source material date:: October 2, 1990

Language:: English

Note:: Kopie des Originals ohne Unterschrift.

Topic:: Income distribution Comments on publications

Shelfmark:: R/B.3.142

Access:: Free access

in W.E.G. Salter, Productivity and Technical Change, Cambridge 1960, pp.43/4. Leibensteins work on X-Efficiency is also relevant. I find the last part of your letter very interesting, where you explain the "habit" of resisting real wage reductions in face of unemploy ment by the existence of doubts about their effectiveness as a job crea tor. I think that this is a very fruitful idea. The Swedish case, which you mention, is a good example, because the neo-classical idea of a strong negative relationship between wages and employment has its strongest base in a small open economy which has to compete in foreign markets (so that higher wages increase costs without contributing a proportional share to effective demand). The Swedish wage reduction was particularly helped by the fact that it was partly based on devaluation so that there was a simultanneous reduction in all wages and relativities were not endangered. But other mechanisms may also contribute to rigid wages. Take the now very fashionable insider-outsider theories (various writings by Lindbeck and Snower and by others). Insiders (incumbents) who have a job ask for high wages consistent with their continued employment, and unemployed outsiders cannot underbid them because employers will not accept their offers. This is so because outsiders have not yet ac quired the necessary inside qualifications ("learning by doing") and insiders might react negatively to attempts to bring some of them in on the basis of lower wages. Thus wages can remain rigid. By the way: I am not worried by any "puzzle", why real wages are not (drastically?!) reduced when unemployment exists. This is a fact which we observe as widely accepted social behaviour. This should be explained (if possible), but it is only a "puzzle" if we stick to the behavioural theory of neo classic economics which makes us believe that individual economic interes ts and optimising behaviour rule the game. Yours sincerely

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