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The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy

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  • Duca, John V.
  • Van Hoose, David D.

Abstract

This paper shows how heterogeneity wage-setting and a link between nominal wage flexibility andg goods-market competition rise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral volatility increase the relative variance of real Walrasian wages. Given this tradeoff, the prevalence of nominal wage contracting reflects both the relative volatility of aggregate versus sectoral disturbances and the overall degree of goods-market market competition. We find that these variables help explain the decline in unionization (a proxy for contracting in) the United States.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 23 (2001)
Issue (Month): 1 (January)
Pages: 1-29

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Handle: RePEc:eee:jmacro:v:23:y:2001:i:1:p:1-29

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Web page: http://www.elsevier.com/locate/inca/622617

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References

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  2. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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  8. Carl E. Walsh, 1994. "Is New Zealand's Reserve Bank Act of 1989 an optimal central bank contract?," Pacific Basin Working Paper Series 94-01, Federal Reserve Bank of San Francisco.
  9. Duca, John V & VanHoose, David D, 1991. "Optimal Wage Indexation in a Multisector Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 859-67, November.
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  25. Bob Mason & Peter Bain, 1993. "The determinants of trade union membership in Britain: A survey of the literature," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(2), pages 332-351, January.
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Citations

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Cited by:
  1. Joseph P. Daniels & David D. VanHoose, 2007. "Openness, Income-Tax Progressivity, and Inflation," Working Papers and Research 0704, Marquette University, Center for Global and Economic Studies and Department of Economics.
  2. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
  3. Duca, John V. & VanHoose, David D., 1998. "Goods-market competition and profit sharing: a multisector macro approach," Journal of Economics and Business, Elsevier, vol. 50(6), pages 525-534, November.
  4. Joseph Daniels & David VanHoose, 2009. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Open Economies Review, Springer, vol. 20(4), pages 473-487, September.
  5. James, Jonathan G. & Lawler, Phillip, 2011. "Optimal delegation implications of central bank transparency," Economics Letters, Elsevier, vol. 113(1), pages 8-11, October.
  6. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
  7. Frank Heinemann, 2003. "The Inflationary Impact of Wage Indexation," CESifo Working Paper Series 867, CESifo Group Munich.

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