Search Theory, Downward Money Wage Rigidity and the Micro Foundations of the Phillips Curve
AbstractThe present paper has two aims. The first one concerns primarily an issue of method. I set up and analyse an explicitly stochastic model of the optimal behaviour of a firm, which recruits from a search labour market. The second aim of my paper concerns very much an issue of substance in economics. I show that when the firm is not allowed to decrease its money wage, its optimal response to lower unemployment is to increase its wage, if a plausible (and testable) condition with regard to its expected horizon is met. Hence search theory predicts the existence of a micro Phillips relation under plausible assumptions.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 200.
Length: 26 pages
Date of creation: Dec 1988
Date of revision:
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Wage rigidity; job search; phillips curve; optimal firm behaviour;
Find related papers by JEL classification:
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
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- Leban, Raymond, 1982. "Employment and wage strategies of the firm over a business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 371-394, November.
- Zuckerman, Dror, 1988. "Job search with general stochastic offer arrival rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(4), pages 679-684, November.
- Eaton, B Curtis & Watts, Martin, 1977. "Wage Dispersion, Job Vacancies and Job Search in Equilibrium," Economica, London School of Economics and Political Science, vol. 44(173), pages 23-35, February.
- Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
- Salop, S. C., 1973. "Wage differentials in a dynamic theory of the firm," Journal of Economic Theory, Elsevier, vol. 6(4), pages 321-344, August.
- Lippman, Steven A, 1980. "Optimal Pricing to Retard Entry," Review of Economic Studies, Wiley Blackwell, vol. 47(4), pages 723-31, July.
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