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Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting

  • Martins, Pedro S.

    ()

    (Queen Mary, University of London)

  • Snell, Andy

    ()

    (University of Edinburgh)

  • Thomas, Jonathan P.

    ()

    (University of Edinburgh)

Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward looking firms take into account these constraints. Using simulated productivity data based on the post-war US economy, we analyse the ability of the model to match certain stylised labour market facts.

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File URL: http://ftp.iza.org/dp4346.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4346.

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Length: 29 pages
Date of creation: Aug 2009
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 112(4), 841-863, 2010
Handle: RePEc:iza:izadps:dp4346
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  1. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.
  2. Paul J. Devereux, 2001. "The cyclicality of real wages within employer-employee matches," Open Access publications 10197/312, School of Economics, University College Dublin.
  3. Menzio, Guido & Moen, Espen R, 2008. "Worker Replacement," CEPR Discussion Papers 7075, C.E.P.R. Discussion Papers.
  4. Mark Gertler & Antonella Trigari, 2006. "Unemployment fluctuations with staggered Nash wage bargaining," Proceedings, Federal Reserve Bank of San Francisco.
  5. Gottfries, Nils & Sjostrom, Tomas, 2000. " Insider Bargaining Power, Starting Wages and Involuntary Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 669-88, December.
  6. Christopher A. Pissarides, 2007. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," CEP Discussion Papers dp0839, Centre for Economic Performance, LSE.
  7. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  8. James Ted McDonald & Christopher Worswick, 1999. "Wages, Implicit Contracts, and the Business Cycle: Evidence from Canadian Micro Data," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 884-913, August.
  9. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
  10. Michael W. Elsby, 2006. "Evaluating the Economic Significance of Downward Nominal Wage Rigidity," NBER Working Papers 12611, National Bureau of Economic Research, Inc.
  11. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
  12. Till von Wachter & Stefan Bender, 2008. "Do Initial Conditions Persist between Firms? An Analysis of Firm-Entry Cohort Effects and Job Losers Using Matched Employer-Employee Data," NBER Chapters, in: The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, pages 135-162 National Bureau of Economic Research, Inc.
  13. Andy Snell & Jonathan Thomas, 2006. " Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics," CDMA Conference Paper Series 0603, Centre for Dynamic Macroeconomic Analysis.
  14. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 921-955.
  15. Louis N. Christofides & Thanasis Stengos, 2003. "Wage Rigidity in Canadian Collective Bargaining Agreements," University of Cyprus Working Papers in Economics 1-2003, University of Cyprus Department of Economics.
  16. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  17. Pedro Martins & Andy Snell & Jonathan P. Thomas, 2005. "Wage Dynamics, Cohort Effects, and Limited Commitment Models," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 350-359, 04/05.
  18. Shin, Donggyun, 1994. "Cyclicality of real wages among young men," Economics Letters, Elsevier, vol. 46(2), pages 137-142, October.
  19. Darren Grant, 2003. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from the National Longitudinal Surveys," ILR Review, Cornell University, ILR School, vol. 56(3), pages 393-408, April.
  20. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  21. Jonas Agell & Per Lundborg, 2003. "Survey Evidence on Wage Rigidity and Unemployment: Sweden in the 1990s," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 15-30, 03.
  22. Donggyun Shin & Kwanho Shin, 2003. "Why Are The Wages of Job Stayers Procyclical?," ISER Discussion Paper 0573, Institute of Social and Economic Research, Osaka University.
  23. Paul J. Devereux & Robert A. Hart, 2007. "The Spot Market Matters: Evidence On Implicit Contracts From Britain," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(5), pages 661-683, November.
  24. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
  25. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
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