Shirking, Endogenous Lay-off Rates and the A-cyclicality of the Real Wage
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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- DE LA CROIX, David & DE WALQUE, Gregory & WOUTERS, Rafael, 2006.
"Dynamics and monetary policy in a fair wage model of the business cycle,"
CORE Discussion Papers
2006106, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- David, DE LA CROIX & Gregory, DE WALQUE & Rafael, WOUTERS, 2006. "Dynamics and monetary policy in a fair wage model of the business cycle," Discussion Papers (ECON - Département des Sciences Economiques) 2006061, Université catholique de Louvain, Département des Sciences Economiques.
- de la Croix, David & de Walque, Gregory & Wouters, Raf, 2007. "Dynamics and monetary policy in a fair wage model of the business cycle," Working Paper Series 0780, European Central Bank.
- 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.
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