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Are "Fair" Wages Quantitatively Important for Business Cycle Fluctuations in Bulgaria?

Author

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  • Aleksandar Vasilev

    (Lincoln International Business School, UK)

Abstract

We introduce "fair" wages in a general-equilibrium model where worker's effort is unobservable and investigate whether such a mechanism can quantitatively account for the degree of real wage rigidity in the Bulgarian labor markets, as documented in Lozev, Vladova, and Paskaleva (2011) and Paskaleva (2016). In contrast to Danthine and Kurmann (2004), here we internalize the effect that past wages have on current effort level. We calibrate the model to Bulgarian data (1999-2016), and quantify the effect of technological shocks on hours and wages in the theoretical setup. Overall, the calibrated model with "fair" wages performs poorly when it comes to the relative volatilities of labor market variables. This is because aggregate labor market conditions, as proxied by the employment rate and past aggregate wages, turn out not to be quantitatively important for business cycles in Bulgaria.

Suggested Citation

  • Aleksandar Vasilev, 2019. "Are "Fair" Wages Quantitatively Important for Business Cycle Fluctuations in Bulgaria?," Bulgarian Economic Papers bep-2019-03, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Feb 2019.
    • Handle: RePEc:sko:wpaper:bep-2019-03
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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