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Dual Wage Rigidities: Theory and Some Evidence

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  • Kim, Insu

Abstract

This paper investigates wage dynamics assuming the potential presence of dual wage stickiness: with respect to both the frequency as well as the size of wage adjustments. In particular, this paper proposes a structural model of wage inflation dynamics assuming that although workers adjust wage contracts at discrete time intervals, they are limited in their abilities to adjust wages as much as they might desire. The dual wage stickiness model nests the baseline model, based on Calvo-type wage stickiness, as a particular case. Empirical results favor the dual sticky wage model over the baseline model that assumes only one type of wage stickiness in several dimensions. In particular, it outperforms the baseline model in terms of goodness of fitness as well as in the ability to explain the observed dynamic correlation between wage inflation and the output gap - which the baseline model fails to capture.

Suggested Citation

  • Kim, Insu, 2009. "Dual Wage Rigidities: Theory and Some Evidence," MPRA Paper 18345, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:18345
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    More about this item

    Keywords

    Wage inflation; sticky wages; sticky prices; new Keynesian; hybrid.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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