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Shirking, Endogenous Lay-off Rates and the A-cyclicality of the Real Wage

Author Info

Listed author(s):
  • Gerhard Rünstler

    (WIFO)

Abstract

The paper extends the Shapiro-Stiglitz (1987) efficiency wage model by endogenising the probability of worker displacement as a function of the change in the firm's employment. This creates counter-cyclical variation in the wage mark-up and thereby generates real wage persistence. A New Keynesian DSGE model equipped with this extension replicates the empirical facts of a very limited response of the real wage to the business cycle together with a lagged hump-shaped response of employment to output.

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File URL: http://www.wifo.ac.at/wwa/pubid/37161
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Paper provided by WIFO in its series WIFO Working Papers with number 350.

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Length: 30 pages
Date of creation:
Handle: RePEc:wfo:wpaper:y:2009:i:350
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Keywords: Efficiency wages; shirking; real wage persistence; New Keynesian models;

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  1. David de la Croix & Gregory de Walque & Rafael Wouters, 2006. "Dynamics and monetary policy in a fair wage model of the business cycle," Working Paper Research 98, National Bank of Belgium.
  2. de la Croix, David & de Walque, Gregory & Wouters, Rafael, 2009. "A Note On Inflation Persistence In A Fair Wage Model Of The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 13(05), pages 673-684, November.
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