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Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting

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Author Info

  • Martins, Pedro S.

    ()
    (Queen Mary, University of London)

  • Snell, Andy

    ()
    (University of Edinburgh)

  • Thomas, Jonathan P.

    ()
    (University of Edinburgh)

Abstract

Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward looking firms take into account these constraints. Using simulated productivity data based on the post-war US economy, we analyse the ability of the model to match certain stylised labour market facts.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4346.

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Length: 29 pages
Date of creation: Aug 2009
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 112(4), 841-863, 2010
Handle: RePEc:iza:izadps:dp4346

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Related research

Keywords: cross-contract restrictions; labour contracts; business cycle; unemployment; equal treatment; downward rigidity;

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References

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  1. Elsby, Michael W.L., 2009. "Evaluating the economic significance of downward nominal wage rigidity," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(2), pages 154-169, March.
  2. Gertler, Mark & Trigari, Antonella, 2006. "Unemployment fluctuation with staggered Nash wage bargaining," CFS Working Paper Series 2007/09, Center for Financial Studies (CFS).
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  4. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2012. "Wage Rigidity and Job Creation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8968, C.E.P.R. Discussion Papers.
  5. Jonas Agell & Per Lundborg, . "Survey evidence on wage rigidity and unemployment: Sweden in the 1990s," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 99-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  6. Andy Snell & Jonathan Thomas, 2006. " Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics," CDMA Conference Paper Series 0603, Centre for Dynamic Macroeconomic Analysis.
  7. Gottfries, Nils & Sjostrom, Tomas, 2000. " Insider Bargaining Power, Starting Wages and Involuntary Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 102(4), pages 669-88, December.
  8. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  9. Paul J. Devereux, 2001. "The Cyclicality of real wages within employer-employee matches," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(4), pages 835-850, July.
  10. Devereux, Paul J. & Hart, Robert A., 2005. "The Spot Market Matters: Evidence on Implicit Contracts from Britain," IZA Discussion Papers 1497, Institute for the Study of Labor (IZA).
  11. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
  12. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 4460, London School of Economics and Political Science, LSE Library.
  13. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 1-25, February.
  14. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
  15. Shin, Donggyun & Shin, Kwanho, 2008. "Why Are The Wages Of Job Stayers Procyclical?," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 12(01), pages 1-21, February.
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  17. McDonald, J.T. & Worswick, C., 1997. "Wages, Implicit Contracts and the Business Cycle: Evidence from Canadian Micro Data," Department of Economics - Working Papers Series, The University of Melbourne 588, The University of Melbourne.
  18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  19. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 921-55, November.
  20. Darren Grant, 2003. "The effect of implicit contracts on the movement of wages over the business cycle: Evidence from the national longitudinal surveys," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 393-408, April.
  21. Louis N. Christofides & Thanasis Stengos, 2003. "Wage rigidity in Canadian collective bargaining agreements," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 429-448, April.
  22. Till von Wachter & Stefan Bender, 2008. "Do Initial Conditions Persist between Firms? An Analysis of Firm-Entry Cohort Effects and Job Losers Using Matched Employer-Employee Data," NBER Chapters, in: The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, pages 135-162 National Bureau of Economic Research, Inc.
  23. Shin, Donggyun, 1994. "Cyclicality of real wages among young men," Economics Letters, Elsevier, Elsevier, vol. 46(2), pages 137-142, October.
  24. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(4), pages 666-89, August.
  25. Pedro Martins & Andy Snell & Jonathan P. Thomas, 2005. "Wage Dynamics, Cohort Effects, and Limited Commitment Models," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(2-3), pages 350-359, 04/05.
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Cited by:
  1. Christopher Reicher, 2011. "Sticky wages in search and matching models in the short and long run," Kiel Working Papers 1722, Kiel Institute for the World Economy.

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