Theoretical Foundations of Asymmetries in the Wage-Employment Relationship

In recent discussions on wage policies and their effects on employment it has been argued that the elasticity of employment to real wages can be different in case of wage increases and wage decreases. The paper analyses first the conceptual and methodological issues raised by this assertion. It then explores in a comparative static framework some of the possible theoretical foundations that might justify the existence of an asymmetric employment to real wages relationship in the presence of infinitesimal shocks. A non-Walrasian quantity-rationing model and two bargaining models are discussed. In all cases an asymmetric adjustment of employment emerges under assumptions.