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