Empirically, real wages exhibit relatively little cyclical variation and a weak cyclical pattern. Early real business cycle (RBC) models predict, to the contrary, large, procyclical real wage movements. Incorporating efficiency wages into a RBC environment would seem promising since one prediction from the efficiency wage literature is real wage rigidity. This paper evaluates a common microfoundation for efficiency wages, the shirking model, with respect to its predictions for real wages within a RBC-style model. Simulations of the model reveal that it can generate dampened but still strongly procyclical real wage behavior. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 40 (1999) Issue (Month): 1 (February) Pages: 3-21 Download reference. The following formats are available: HTML
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Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2005.
"The Business Cycle and the Life Cycle,"
NBER Chapters,
in: NBER Macroeconomics Annual 2004, Volume 19, pages 415-592
National Bureau of Economic Research, Inc.
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