Working Paper: CEPR ID: DP16764
Authors: Tobias Broer; Karl Harmenberg; Per Krusell; Erik Berg
Abstract: We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model very similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts can be reset very frequently, labor supply behaves in accordance with King et al. (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood et al. (1988), thus allowing significant responses of hours to wage changes.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage contract frequency (J31) | labor supply responsiveness (J20) |
| wage rigidity (J31) | Phillips curve-like relationship (E31) |
| sticky wage contracts (J31) | significant responses of hours worked to wage changes (J38) |
| equilibrium hours worked (J29) | maximize joint surplus (D69) |
| wage rigidity (J31) | lag in labor supply reactions (J20) |
| steady-state labor share (J89) | responses of average real hourly wages (J39) |