Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting
Pedro S. Martins
Queen Mary College - School of Business and Management; CEG - IST; Institute for the Study of Labor (IZA)
University of Edinburgh - Economics
University of Edinburgh - Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
IZA Discussion Paper No. 4346
Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward looking firms take into account these constraints. Using simulated productivity data based on the post-war US economy, we analyse the ability of the model to match certain stylised labour market facts.
Number of Pages in PDF File: 29
Keywords: labour contracts, business cycle, unemployment, equal treatment, downward rigidity, cross-contract restrictions
JEL Classification: E32, J41working papers series
Date posted: August 18, 2009
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