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Demand Management Towards Internal and External Balance in an Open Economy with Centralized Wage Setting

Published online by Cambridge University Press:  17 August 2016

Torben M. Andersen
Torben M. Andersen*
Affiliation:
University of Aarhus
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Summary

The efficiency of demand management policies is considered in a two-sector model of a small and open economy with centralized wage bargaining. Differences in labour demand between sectors are shown to have qualitative implications for the responsiveness of wages to changes in output prices. Wage increases induced by increased demand in one sector may, thus, crowd out activity in other sectors, and this has important consequences for the effects of demand management policies on internal and external goals. An often proposed and practised policy of switching demand from tradeables to non-tradeables to ensure internal and external balance is extensively discussed.

Résumé

Résumé

Cet article étudie l'efficacité des politiques de régulation de la demande dans un modèle de petite économie ouverte, à deux secteurs, et dans laquelle les négociations salariales sont centralisées. Nous montrons que des différences de demande de travail entre les deux secteurs exercent un impact qualitatif sur la manière dont les salaires réagissent aux variations des prix des produits. Des hausses salariales induites par un accroissement de la demande dans un secteur donné peuvent entraîner un effet d'éviction sur l'activité des autres secteurs. Ce phénomène a des conséquences importantes quant aux effets des politiques de demande sur la réalisation des objectifs internes et externes. Nous discutons enfin la politique, souvent préconisée et mise en oeuvre, qui consiste à réorienter la demande des biens du secteur exposé vers les biens du secteur protégé, dans le but d'assurer les équilibres internes et externes.

Keywords

F41J51F41J51
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 57 , Issue 4 , 1991 , pp. 361 - 378
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1991 

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Footnotes

*

Comments by an anonymous referee as well as participants in a seminar at the Département des Sciences Economiques, Louvain-la-Neuve are gratefully acknowledged.

References

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