Working Paper: NBER ID: w1373
Authors: Joshua Aizenman
Abstract: The purpose of this paper is to compare the behavior of an economy subject to labor contracts with an economy where the labor market clears in an auction manner. Such a comparison is intended to reveal the information content of real wages in a flexible economy. The analysis reveals two distinct costs inflicted by nominal contracts and demonstrates that optimal macro policies can eliminate one of them.
Keywords: No keywords provided
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 |
|---|---|
| nominal wage contracts (J41) | deterioration in aggregate information available to decision-makers (D83) |
| nominal wage contracts (J41) | wage rigidity (J31) |
| wage rigidity (J31) | welfare losses (D69) |
| absence of a market (D52) | deterioration in aggregate information available to decision-makers (D83) |
| optimal macro policies (E60) | adjustment of real wages to observable shocks (J39) |
| absence of a market (D52) | equilibrium that fails to disclose aggregate productivity shocks (D59) |
| aggregate productivity shock (O49) | market clearing wage (J31) |
| optimal macro policies (E60) | deviations from flexible equilibrium (D50) |