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.
|Date of creation:||Jan 1986|
|Date of revision:|
|Publication status:||published as Aizenman, Joshua and Jacob A. Frenkel. "Sectorial Wages and the Real Exchange Rate," Journal of International Economics, Vol. 24, pp. 69-91, (1988).|
|Note:||EFG ITI IFM|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- 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.
- 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.
- 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.
- 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.
- Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
- 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.
- 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.
- Rudiger Dornbusch, 1981. "Real Interest Rates, Home Goods, and Optimal External Borrowing," NBER Working Papers 0779, National Bureau of Economic Research, Inc.
- Neary, J Peter, 1980. "Nontraded Goods and the Balance of Trade in a Neo-Keynesian Temporary Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 403-29, November.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Aizenman, Joshua, 1983. "Dynamics of trade liberalization policy," Journal of Development Economics, Elsevier, vol. 13(1-2), pages 133-142.
- Helpman, Elhanan, 1977. "Nontraded Goods and Macroeconomic Policy under a Fixed Exchange Rate," The Quarterly Journal of Economics, MIT Press, vol. 91(3), pages 469-80, August.
- Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1801. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.