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Efficiency wage setting, labor demand, and Phillips curve microfoundations

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  • Campbell, Carl

Abstract

This study demonstrates that a model with efficiency wages and imperfect information produces a Phillips curve relationship. Equations are derived for labor demand and the efficiency wage-setting condition, and shifts in these curves in response to aggregate demand shocks result in a relationship with the characteristics of a Phillips curve. The Phillips curve differs from the efficiency wage-setting condition in that the Phillips curve is a more parsimonious expression and has a coefficient on expected inflation equal to 1. Also derived from this model is the counterpart curve to the Phillips curve in unemployment – inflation space.

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File URL: http://mpra.ub.uni-muenchen.de/49196/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34121.

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Date of creation: 14 Oct 2011
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Handle: RePEc:pra:mprapa:34121

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Keywords: Phillips curve; Efficiency wages; Imperfect information;

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  1. John M. Roberts, 1998. "Inflation expectations and the transmission of monetary policy," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-43, Board of Governors of the Federal Reserve System (U.S.).
  2. Campbell, Carl M., 2009. "An efficiency wage - imperfect information model of the aggregate supply curve," MPRA Paper 15296, University Library of Munich, Germany.
  3. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(3), pages 526-38, June.
  4. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  5. Campbell III, Carl M., 2008. "An efficiency wage approach to reconciling the wage curve and the Phillips curve," Labour Economics, Elsevier, Elsevier, vol. 15(6), pages 1388-1415, December.
  6. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 759-89, August.
  7. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics, University of Munich, Department of Economics 1255, University of Munich, Department of Economics.
  8. Wadhwani, Sushil B & Wall, Martin, 1991. "A Direct Test of the Efficiency Wage Model Using UK Micro-data," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 529-48, October.
  9. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  10. Taylor, John B., 1980. "Output and price stability: An international comparison," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 109-132, May.
  11. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, Elsevier, vol. 1(1), pages 79-82.
  12. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips curve," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-30, Board of Governors of the Federal Reserve System (U.S.).
  13. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 195-222, October.
  14. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(4), pages 975-84, November.
  15. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  16. Campbell III, Carl M., 2006. "A model of the determinants of effort," Economic Modelling, Elsevier, Elsevier, vol. 23(2), pages 215-237, March.
  17. Campbell, Carl M., 2011. "The formation of wage expectations in the effort and quit decisions of workers," MPRA Paper 31590, University Library of Munich, Germany.
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