Search Theory, Downward Money Wage Rigidity and the Micro Foundations of the Phillips Curve
The present paper has two aims. The first one concerns primarily an issue of method. I set up and analyse an explicitly stochastic model of the optimal behaviour of a firm, which recruits from a search labour market. The second aim of my paper concerns very much an issue of substance in economics. I show that when the firm is not allowed to decrease its money wage, its optimal response to lower unemployment is to increase its wage, if a plausible (and testable) condition with regard to its expected horizon is met. Hence search theory predicts the existence of a micro Phillips relation under plausible assumptions.
|Date of creation:||Dec 1988|
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- Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
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- Eaton, B Curtis & Watts, Martin, 1977. "Wage Dispersion, Job Vacancies and Job Search in Equilibrium," Economica, London School of Economics and Political Science, vol. 44(173), pages 23-35, February.
- Salop, S. C., 1973. "Wage differentials in a dynamic theory of the firm," Journal of Economic Theory, Elsevier, vol. 6(4), pages 321-344, August.
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