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Cyclical Movements in Hours and Effort under Sticky Wages

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Author Info

  • Yongsung Chang

    (University of Pennsylvania)

  • Mark Bils

    (University of Rochester)

Abstract

We examine the response of a sticky-wage economy to various real and nominal shocks. In addition to variations in hours, we allow for an endogenous response in worker effort per hour. Despite wages being predetermined, the labor market clears through the effort margin. We find that the ability of a sticky-wage model to mimic U.S. business cycles is much improved by allowing for reasonable effort movements. The model also provides a ready explanation for the finding that TFP is negatively affected by nominal shocks.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0204004.

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Date of creation: 01 May 2002
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Handle: RePEc:wpa:wuwpma:0204004

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Web page: http://128.118.178.162

Related research

Keywords: Sticky Wages; Endogenous Effort; Productivity; Business Cycles;

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References

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  1. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S176-S215, June.
  2. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  3. Edward E. Leamer, 1996. "Effort, Wages and the International Division of Labor," NBER Working Papers 5803, National Bureau of Economic Research, Inc.
  4. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, July.
  5. Robert E. Hall, 1986. "The Role of Consumption in Economic Fluctuations," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 237-266 National Bureau of Economic Research, Inc.
  6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," NBER Working Papers 5809, National Bureau of Economic Research, Inc.
  7. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  8. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 463-497, June.
  9. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  10. Parkin, Michael, 1988. "A method for determining whether parameters in aggregative models are structural," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 215-252, January.
  11. Oi, Walter Y, 1990. "Employment Relations in Dual Labor Markets (" It's Nice Work If You Can Get It")," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S124-49, January.
  12. Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
  13. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
  14. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  15. Yongsung Chang & Mark Bils, 2002. "Welfare Costs of Sticky Wages When Effort Can Respond," Macroeconomics 0204003, EconWPA.
  16. Becker, Gary S, 1985. "Human Capital, Effort, and the Sexual Division of Labor," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages S33-58, January.
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Cited by:
  1. Yongsung Chang & Mark Bils, 2002. "Welfare Costs of Sticky Wages When Effort Can Respond," Macroeconomics 0204003, EconWPA.

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