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Shirking, Endogenous Lay-off Rates and the A-cyclicality of the Real Wage

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Author Info

  • Gerhard Rünstler

    (WIFO)

Abstract

The paper extends the Shapiro-Stiglitz (1987) efficiency wage model by endogenising the probability of worker displacement as a function of the change in the firm's employment. This creates counter-cyclical variation in the wage mark-up and thereby generates real wage persistence. A New Keynesian DSGE model equipped with this extension replicates the empirical facts of a very limited response of the real wage to the business cycle together with a lagged hump-shaped response of employment to output.

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File URL: http://www.wifo.ac.at/wwa/pubid/37161
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Bibliographic Info

Paper provided by WIFO in its series WIFO Working Papers with number 350.

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Length: 30 pages
Date of creation:
Date of revision:
Handle: RePEc:wfo:wpaper:y:2009:i:350

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Related research

Keywords: Efficiency wages; shirking; real wage persistence; New Keynesian models;

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  1. Dixon,Huw David & Rankin,Neil, 1995. "The New Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521479479, October.
  2. David, DE LA CROIX & Gregory, DE WALQUE & Rafael, WOUTERS, 2006. "Dynamics and monetary policy in a fair wage model of the business cycle," Discussion Papers (ECON - Département des Sciences Economiques) 2006061, Université catholique de Louvain, Département des Sciences Economiques.
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