Munich Personal RePEc Archive

Recessionary shock and factor return in an underemployed economy

Beladi, Hamid and Mandal, Biswajit (2011): Recessionary shock and factor return in an underemployed economy.

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Abstract

This paper builds a general equilibrium model for a small open economy with unemployment of unskilled labor to assess the impact of a recessionary shock. It is shown that irrespective of the factor intensity assumption skilled wage and rental ratio goes up if recession led price fall is significant. However, when the price fall is not sufficiently big, factor intensity assumption becomes crucial for the eventual effect on factors’ return ration.

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