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Macroeconomic Dynamics with Rigid Wage Contracts

Author

Listed:
  • Tobias Broer
  • Karl Harmenberg
  • Per Krusell
  • Erik Öberg

Abstract

We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model very similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts can be reset very frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988), thus allowing significant responses of hours to wage changes.

Suggested Citation

  • Tobias Broer & Karl Harmenberg & Per Krusell & Erik Öberg, 2021. "Macroeconomic Dynamics with Rigid Wage Contracts," NBER Working Papers 29540, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29540
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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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