Working Paper: NBER ID: w29540
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, Plosser, and Rebelo (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988), thus allowing significant responses of hours to wage changes.
Keywords: No keywords provided
JEL Codes: E2; E3; J2; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage rigidity (J31) | labor supply behavior (J29) |
| frequent wage contract reset (J33) | labor supply behavior according to King, Plosser, and Rebelo (1988) (J20) |
| sticky wage contracts (J31) | wage rigidity affects responses to wage changes (J31) |
| wage rigidity (J31) | wage Phillips curve (J31) |
| elasticity of production function and labor share (E23) | average real hourly wage response to shocks (J39) |
| wage contracts (J41) | macroeconomic variables (E19) |