Economic Crisis in a Shortage Economy

April 1, 1991

Preview Citation

Format: Chicago

Kent Osband. Economic Crisis in a Shortage Economy, (USA: International Monetary Fund, 1991) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

It is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices. This policy can be dangerously destabilizing. While higher wages permit workers to purchase more of some goods, they also tend to exacerbate shortages and to breed waste and corruption. Beyond a certain level, economy-wide wage hikes will worsen worker welfare. This is true regardless of whether deficit goods are strictly rationed, are sold randomly at official prices to queuing workers, or are offered to workers by “insiders” only at black market prices. However, the form of allocation does influence output and worker welfare.

Subject: Corruption, Crime, Income, Labor, National accounts, Price controls, Prices, Wages

Keywords: Consumer goods, Corruption, Deficit goods, Economic crisis, Global, Income, Market-clearing price, Nominal wage, Price controls, Price liberalization, Real wage, Reform proposal, Shortage goods offer, Shortage rent, Surplus goods, Wages, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/038
Stock No:

WPIEA0381991
ISBN:

9781451845617
ISSN:

1018-5941

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