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The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy

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  • John V. Duca
  • David D. VanHoose

Abstract

This paper shows how heterogeneity wage-setting and a link between nominal wage flexibility andg goods-market competition rise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral volatility increase the relative variance of real Walrasian wages. Given this tradeoff, the prevalence of nominal wage contracting reflects both the relative volatility of aggregate versus sectoral disturbances and the overall degree of goods-market market competition. We find that these variables help explain the decline in unionization (a proxy for contracting in) the United States.

Suggested Citation

  • John V. Duca & David D. VanHoose, 1998. "The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy," Working Papers 9805, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:98-05
    Note: Published as: Duca, John V. and David D. VanHoose (2001), "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics 23 (1): 1-29.
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    Cited by:

    1. Joseph Daniels & David VanHoose, 2009. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Open Economies Review, Springer, vol. 20(4), pages 473-487, September.
    2. Duca, John V. & Vanhoose, David D., 1998. "The Rise of Goods-Market Competition and the Decline in Wage Indexation: A Macroeconomic Approach," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 579-598, July.
    3. Duca, John V. & VanHoose, David D., 1998. "Goods-market competition and profit sharing: a multisector macro approach," Journal of Economics and Business, Elsevier, vol. 50(6), pages 525-534, November.
    4. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
    5. Frank Heinemann, 2006. "Wage Indexation and Monetary Policy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 486-504, September.
    6. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
    7. James, Jonathan G. & Lawler, Phillip, 2011. "Optimal delegation implications of central bank transparency," Economics Letters, Elsevier, vol. 113(1), pages 8-11, October.
    8. Daniels, Joseph P. & VanHoose, David D., 2009. "Openness, income-tax progressivity, and inflation," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 485-491, September.
    9. Frank Heinemann, 2003. "The Inflationary Impact of Wage Indexation," CESifo Working Paper Series 867, CESifo.

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