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

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  • Jonathan Thomas
  • Andy Snell
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    Abstract

    This paper analyses a model with downward rigidities in which firms cannot pay discriminate based on 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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    File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/cp0708.pdf
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    Bibliographic Info

    Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0708.

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    Handle: RePEc:san:cdmacp:0708

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    Postal: Department of Economics, University of St. Andrews, Fife KY16 9AL
    Phone: 01334 462420
    Fax: 01334 462444
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    Web page: http://www.st-andrews.ac.uk/cdma
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    Related research

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

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    1. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
    2. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
    3. 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).
    4. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    5. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
    6. Jonathan P. Thomas & Andy Snell, 2009. "Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics," 2009 Meeting Papers 179, Society for Economic Dynamics.
    7. Shin, Donggyun, 1994. "Cyclicality of real wages among young men," Economics Letters, Elsevier, vol. 46(2), pages 137-142, October.
    8. Truman F. Bewley, 1999. "Work Motivation," Cowles Foundation Discussion Papers 1209, Cowles Foundation for Research in Economics, Yale University.
    9. James Ted McDonald & Christopher Worswick, 1999. "Wages, Implicit Contracts, and the Business Cycle: Evidence from Canadian Micro Data," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 884-913, August.
    10. 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.
    11. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2009. "Wage Rigidity and Job Creation," Kiel Working Papers 1504, Kiel Institute for the World Economy.
    12. 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.
    13. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
    14. Truman Bewley, 1999. "Work motivation," Review, Federal Reserve Bank of St. Louis, issue May, pages 35-49.
    15. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
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