Sectorial wages and the real exchange rate
Consider a multi-sector economy subject to an exogenous demand shock that alters the equilibrium structure of relative prices. How should the structure of sectorial wages adjust in response to such a shock? This question is addressed in the context of a multi-sector model of an open-economy producing internationally tradable and non-tradable goods. In order to focus on intersectorial wage structure without abandoning the competitive neoclassical paradigm we assume that workers differ from each other in their absolute and relative skills. Such differences result in equilibrium wage differentials which are affected by the exogenous real shock. Cost of negotiations result in labor market contracts which set nominal wages in advance of the realization of the stochastic shocks. The analysis provides formulae for the optimal sectorial wage-indexation rules. The optimal rules alter both the absolute and the relative structure of sectorial nominal wages. We examine the dependence of the optimal wage adjustments on the degree of heterogeneity of the skill distribution and on the degree to which the economy is open to international trade; we also study the effects of various shocks and policies on the real exchange rate, real wages and the distribution of income.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Rudiger Dornbusch, 1981.
"Real Interest Rates, Home Goods, and Optimal External Borrowing,"
NBER Working Papers
0779, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February.
- Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
- Robert E. Hall & Edward P. Lazear, 1982.
"The Excess Sensitivity of Layoffs and Quits to Demand,"
NBER Working Papers
0864, National Bureau of Economic Research, Inc.
- Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-57, April.
- Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-77, September.
- Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
- Aizenman, Joshua & Frenkel, Jacob A, 1985.
"Optimal Wage Indexation, Foreign Exchange Intervention, and Monetary Policy,"
American Economic Review,
American Economic Association, vol. 75(3), pages 402-23, June.
- Joshua Aizenman & Jacob A. Frenkel, 1984. "Optimal Wage Indexation, Foreign-Exchange Intervention and Monetary Policy," NBER Working Papers 1329, National Bureau of Economic Research, Inc.
- Elhanan Helpman, 1977. "Nontraded Goods and Macroeconomic Policy Under a Fixed Exchange Rate," The Quarterly Journal of Economics, Oxford University Press, vol. 91(3), pages 469-480.
- Alan S. Blinder & N. Gregory Mankiw, 1982.
"Aggregation and Stabilization Policy in a Multi-Contract Economy,"
NBER Working Papers
0873, National Bureau of Economic Research, Inc.
- Blinder, Alan S. & Mankiw, N. Gregory, 1984. "Aggregation and stabilization policy in a multi-contract economy," Journal of Monetary Economics, Elsevier, vol. 13(1), pages 67-86, January.
- Richard C. Marston & Stephen J. Turnovsky, 1985.
"Macroeconomic Stabilization Through Taxation and Indexation: The use ofFirm-Specific Information,"
NBER Working Papers
1586, National Bureau of Economic Research, Inc.
- Marston, Richard C. & Turnovsky, Stephen J., 1985. "Macroeconomic stabilization through taxation and indexation: The use of firm-specific information," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 375-395, November.
- J. Peter Neary, 1980. "Nontraded Goods and the Balance of Trade in a Neo-Keynesian Temporary Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 95(3), pages 403-429.
- Aizenman, Joshua, 1983. "Dynamics of trade liberalization policy," Journal of Development Economics, Elsevier, vol. 13(1-2), pages 133-142.
When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:24:y:1988:i:1-2:p:69-91. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.