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

Listed author(s):
  • 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
Publication status: published in: Scandinavian Journal of Economics, 112(4), 841-863, 2010
Handle: RePEc:iza:izadps:dp4346
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  1. 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.
  2. Paul J. Devereux, 2001. "The Cyclicality of Real Wages within Employer-Employee Matches," ILR Review, Cornell University, ILR School, vol. 54(4), pages 835-850, July.
  3. Gottfries, Nils & Sjöström, Tomas, 1998. "Insider Bargaining Power, Starting Wages, and Involuntary Unemployment," Working Paper Series 1998:10, Uppsala University, Department of Economics.
  4. Elsby, Michael W.L., 2009. "Evaluating the economic significance of downward nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 154-169, March.
  5. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2012. "Wage Rigidity and Job Creation," CEPR Discussion Papers 8968, C.E.P.R. Discussion Papers.
  6. Andy Snell & Jonathan Thomas, 2006. "Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics," ESE Discussion Papers 144, Edinburgh School of Economics, University of Edinburgh.
  7. Jonas Agell & Per Lundborg, "undated". "Survey evidence on wage rigidity and unemployment: Sweden in the 1990s," EPRU Working Paper Series 99-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Shin, Donggyun & Shin, Kwanho, 2008. "Why Are The Wages Of Job Stayers Procyclical?," Macroeconomic Dynamics, Cambridge University Press, vol. 12(01), pages 1-21, February.
  9. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
  10. Menzio, Guido & Moen, Espen R, 2008. "Worker Replacement," CEPR Discussion Papers 7075, C.E.P.R. Discussion Papers.
  11. Mark Gertler & Antonella Trigari, 2006. "Unemployment fluctuations with staggered Nash wage bargaining," Proceedings, Federal Reserve Bank of San Francisco.
  12. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, 09.
  13. 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.
  14. 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.
  15. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  16. Louis N. Christofides & Thanasis Stengos, 2003. "Wage Rigidity in Canadian Collective Bargaining Agreements," ILR Review, Cornell University, ILR School, vol. 56(3), pages 429-448, April.
  17. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  18. Shin, Donggyun, 1994. "Cyclicality of real wages among young men," Economics Letters, Elsevier, vol. 46(2), pages 137-142, October.
  19. 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, September.
  20. 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.
  21. 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.
  22. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  23. 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.
  24. 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.
  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 666-689, August.
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