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Wage Contracts and Labor Adjustment Costs as Endogenous Propagation Mechanisms

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Abstract

We examine the dual role of labor adjustment costs and staggered wage contracts as endogenous propagation mechanisms. We show that a dynamic general equilibrium model which combines these two features explains the autocorrelation functions of output growth and nominal wage growth, as well as the significant trend-reverting component in aggregate output. Transitory shocks are measured as shocks to the growth of money supply. The structural parameters of the model are estimated for the US postwar economy using a GMM procedure. The overidentifying restrictions implied by our model are very far from being rejected. Dans ce travail, nous étudions le rôle des coûts d'ajustement du travail et des contrats salariaux imbriqués en tant que mécanismes endogènes de propagation pour un modèle du cycle économique. Nous montrons qu'un modèle dynamique d'équilibre général qui inclut ces deux éléments est capable d'expliquer à la fois les fonctions d'autocorrélation du taux de croissance de la production et du taux de croissance du salaire nominal, et la présence d'une composante transitoire importante pour la production. Les chocs transitoires dans ce modèle proviennent de chocs au taux de croissance de la monnaie. Les paramètres structurels du modèle sont estimés à l'aide de la méthode des moments généralisés pour un échantillon couvrant les États-Unis d'après-guerre. Un test de spécification basé sur les restrictions de suridentification ne peut rejeter le modèle.

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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 69.

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Length: 42 pages
Date of creation: Feb 1999
Date of revision:
Handle: RePEc:cre:crefwp:69

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Keywords: Wage contracts; Labor adjustment costs; Business cycles; Endogenous propagation mechanisms;

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