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An efficiency wage approach to reconciling the wage curve and the Phillips curve

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  • Campbell III, Carl M.

Abstract

This study develops an efficiency wage model that generates a wage curve at the regional level and a Phillips curve at the national level, under the assumption that workers' efficiency depends on both regional and aggregate labor market conditions. An equation relating wages to unemployment and lagged wages is derived from the profit-maximizing behavior of firms, and it is demonstrated that the coefficient on lagged wages is less than 1 with regional data but equals 1 with aggregate data. In addition, there is an equilibrium relationship between unemployment and wages at the regional level, but not at the aggregate level.

Suggested Citation

  • Campbell III, Carl M., 2008. "An efficiency wage approach to reconciling the wage curve and the Phillips curve," Labour Economics, Elsevier, vol. 15(6), pages 1388-1415, December.
    • Handle: RePEc:eee:labeco:v:15:y:2008:i:6:p:1388-1415
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    Cited by:

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    2. Daniel Velázquez Orihuela & Zeus Salvador Hernández Veleros, 2018. "Una explicación a la curva de salarios," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 37(73), February.
    3. Raul Ramos & Catia Nicodemo & Esteve Sanromá, 2015. "A spatial panel wage curve for Spain," Letters in Spatial and Resource Sciences, Springer, vol. 8(2), pages 125-139, July.
    4. Andrea Vaona, 2015. "The price-price Phillips curve in small open economies and monetary unions: theory and empirics," International Economics and Economic Policy, Springer, vol. 12(2), pages 281-307, June.
    5. Campbell, Carl, 2011. "Efficiency wage setting, labor demand, and Phillips curve microfoundations," MPRA Paper 34121, University Library of Munich, Germany.
    6. García-Mainar , Inmaculada & Montuenga-Gómez , Víctor M., 2012. "Wage dynamics in Spain: evidence from individual data (1994-2001)," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 24, pages 41-58.
    7. Persyn, Damiaan, 2021. "Aggregation bias in wage rigidity estimation," MPRA Paper 106464, University Library of Munich, Germany.
    8. Pant, Hom & Warr, Peter, 2016. "Modelling Involuntary Unemployment in Applied GE Models," Conference papers 332799, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Campbell III, Carl M., 2010. "Deriving the wage-wage and price-price Phillips curves from a model with efficiency wages and imperfect information," Economics Letters, Elsevier, vol. 107(2), pages 242-245, May.
    10. Damiaan Persyn, 2020. "Spatial aggregation bias in wage curve and NAWRU estimation," JRC Working Papers on Territorial Modelling and Analysis 2020-02, Joint Research Centre.

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    More about this item

    Keywords

    J41 Efficiency wages Phillips curve wage curve;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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