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Sticky Consumption and Rigid Wages

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Author Info

  • Ellingsen, T.
  • Holden, S.

Abstract

The paper suggests a channel through which past expectations affect current wage aspirations, leading to real wage rigidity. Expectations have a long run impact on the composition of consumption, because they determine the purchase of durables. Due to adjustment costs, moderate changes in income are absorbed by non-durable consumption only. We show that when labour demand is unexpectedly low, workers are risk seeking; they prefer a risk of becoming unemployed to a substantial reduction of the real wage. Conversely, they show moderation when labour demand is unexpectedly high.

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Bibliographic Info

Paper provided by Oslo University, Department of Economics in its series Memorandum with number 21/1995.

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Length: 27 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:hhs:osloec:1995_021

Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Email:
Web page: http://www.oekonomi.uio.no/indexe.html
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Related research

Keywords: CONSUMPTION; WAGES;

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Cited by:
  1. Steinar Holden & Fredrik Wulfsberg, 2007. "Are Real Wages Rigid Downwards?," CESifo Working Paper Series 1983, CESifo Group Munich.
  2. Andrew Postlewaite & Larry Samuelson & Dan Silverman, 2006. "Consumption Commitments and Employment Contracts," Levine's Bibliography 321307000000000145, UCLA Department of Economics.
  3. Larry Samuelson & Andrew Postlewaite, 2004. "Consumption Commitments and Preferences for Risk," Econometric Society 2004 North American Winter Meetings 162, Econometric Society.
  4. Steinar Holden & Fredrik Wulfsberg, 2007. "How strong is the case for downward real wage rigidity?," Working Papers 07-6, Federal Reserve Bank of Boston.
  5. Holden,S. & Driscoll,J.C., 2001. "A note on inflation persistence," Memorandum 09/2001, Oslo University, Department of Economics.
  6. Andrew Postlewaite & Larry Samuelson & Dan Silverman, 2006. "Consumption Commitments and Employment Contracts, Fourth Version," PIER Working Paper Archive 07-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 09 Jul 2007.

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