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The formation of wage expectations in the effort and quit decisions of workers

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  • Campbell, Carl M.

Abstract

This study develops models in which workers form expectations of average wages in choosing levels of effort and on-the-job search. It is assumed that information on lagged average wages is available at a low fixed cost, whilst acquiring other information requires an additional variable cost. Under reasonable conditions, workers' expectations are at least partly adaptive, and may be a mixture of rational and adaptive expectations. Microeconomic parameters determine the degree to which expectations are adaptive and the weights placed on various lags of wages. As a result of partly adaptive expectations, nominal demand shocks may have real effects.

Suggested Citation

  • Campbell, Carl M., 2014. "The formation of wage expectations in the effort and quit decisions of workers," Economic Modelling, Elsevier, vol. 42(C), pages 313-322.
  • Handle: RePEc:eee:ecmode:v:42:y:2014:i:c:p:313-322
    DOI: 10.1016/j.econmod.2014.07.002
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    Cited by:

    1. Andrea Vaona, 2015. "The price-price Phillips curve in small open economies and monetary unions: theory and empirics," International Economics and Economic Policy, Springer, vol. 12(2), pages 281-307, June.
    2. Campbell, Carl, 2011. "Efficiency wage setting, labor demand, and Phillips curve microfoundations," MPRA Paper 34121, University Library of Munich, Germany.

    More about this item

    Keywords

    Wage expectations; Imperfect information;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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