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Uniform and Nonuniform Staggering of Wage Contracts

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  • Leif Danziger

Abstract

This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provides a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-07/cesifo1_wp3112.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3112.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3112

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Keywords: uniform staggering; nonuniform staggering; monetary policy shocks; strategic substitutability; wage contracts; contract duration;

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References

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  1. Giovanni Olivei & Silvana Tenreyro, 2008. "Wage Setting Patterns and Monetary Policy: International Evidence," CEP Discussion Papers, Centre for Economic Performance, LSE dp0872, Centre for Economic Performance, LSE.
  2. Wallace, Frederick H, 2001. "The Effects of Shock Size and Type on Labor-Contract Duration," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 19(3), pages 658-81, July.
  3. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 640, Board of Governors of the Federal Reserve System (U.S.).
  4. Fethke, Gary & Policano, Andrew, 1986. "Will Wage Setters Ever Stagger Decisions? [Wage Contingencies, the Pattern of Negotiation and Aggregate Implications of Alternative Contract Structures]," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(4), pages 867-77, November.
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  7. Matsukawa, Shigeru, 1986. "The Equilibrium Distribution of Wage Settlements and Economic Stability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 415-37, June.
  8. Robert Rich & Joseph Tracy, 2004. "Uncertainty and Labor Contract Durations," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 270-287, February.
  9. Ascari, G., 1997. "Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 486, University of Warwick, Department of Economics.
  10. Ball, Laurence Markham, 1987. "Externalities from Contract Length," American Economic Review, American Economic Association, American Economic Association, vol. 77(4), pages 615-29, September.
  11. Ronald G. Ehrenberg & Leif Danziger & Gee San, 1982. "Cost-of-Living Adjustment Clauses in Union Contracts," NBER Working Papers 0998, National Bureau of Economic Research, Inc.
  12. Christofides, L. & Peng, C., 2004. "Contract Duration and Indexation in a Period of Real and Nominal Uncertainty," Working Papers, University of Guelph, Department of Economics and Finance 2004-3, University of Guelph, Department of Economics and Finance.
  13. K. Huang & Z. Liu, . "Staggered price-setting, staggered wage-setting, and business cycle persistence," Working Papers, Utah State University, Department of Economics 2000-28, Utah State University, Department of Economics.
  14. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  15. Danziger, Leif, 1988. "Real Shocks, Efficient Risk Sharing, and the Duration of Labor Contracts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(2), pages 435-40, May.
  16. Christofides, Louis N, 1990. "The Interaction between Indexation, Contract Duration and Non-contingent Wage Adjustment," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 57(227), pages 395-409, August.
  17. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6112, C.E.P.R. Discussion Papers.
  18. Olivei, Giovanni & Tenreyro, Silvana, 2006. "The Timing of Monetary Policy Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5716, C.E.P.R. Discussion Papers.
  19. Andersen, Torben M., 1998. "Persistency in sticky price models," European Economic Review, Elsevier, Elsevier, vol. 42(3-5), pages 593-603, May.
  20. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(1), pages 1-18, February.
  21. Kevin J. Murphy, 1992. "Determinants of contract duration in collective bargaining agreements," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, ILR Review, Cornell University, ILR School, vol. 45(2), pages 352-365, January.
  22. Dye, Ronald A, 1985. "Optimal Length of Labor Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 251-70, February.
  23. Fethke, Gary & Policano, Andrew, 1987. "Monetary policy and the timing of wage negotiations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(1), pages 89-105, January.
  24. Harris, Milton & Holmstrom, Bengt, 1987. "On the Duration of Agreements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 389-406, June.
  25. Fethke, Gary & Policano, Andrew J, 1990. "Information Incentives and Contract Timing Patterns," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 651-65, August.
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Cited by:
  1. Yu-Fu Chen & Michael Funke, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 236, Economic Studies, University of Dundee.
  2. Chen, Yu-Fu & Funke, Michael, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-48, Scottish Institute for Research in Economics (SIRE).

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