The Allocation of Non-Leisure Time and the Price of Capital: A Model Applied Empirically to the Wage Curve

42 Pages Posted: 24 Aug 2008 Last revised: 11 Oct 2014

See all articles by Eddie Gerba

Eddie Gerba

Banco de España; London School of Economics & Political Science (LSE); CES Ifo Institute; European Central Bank

Emmanuel V. Pikoulakis

Hull University Business School (HUBS)

Tomasz Piotr Wisniewski

Open University, UK

Date Written: August 23, 2008

Abstract

Our aim in this paper is, first, to derive a model capable of explaining the stylized fact that fluctuations in labor market activities over the business cycle are primarily accommodated by changes in employment rather than in wages and, secondly, to test this model empirically. The model is simple, analytically tractable, capable of explaining a wide range of labor market behavior and, crucially, capable of explaining away real wage rigidities without resorting to market imperfections. Second, when tested empirically, the model is found to be strongly supported by the data of a diverse spectrum of economies. As it turns out, our model shares a key property with Phelps (1994) and Phelps and Zoega (1998), namely, that variations in the price of assets play a pivotal role in explaining variations in employment and in wage rates.

Keywords: Wage Curve, Price of Capital, Intratemporal and Intertemporal Substitution, Homework

JEL Classification: E22, E23, E24, J22, J23, J24

Suggested Citation

Gerba, Eddie and Pikoulakis, Emmanuel V. and Wisniewski, Tomasz Piotr, The Allocation of Non-Leisure Time and the Price of Capital: A Model Applied Empirically to the Wage Curve (August 23, 2008). Available at SSRN: https://ssrn.com/abstract=1249429 or http://dx.doi.org/10.2139/ssrn.1249429

Eddie Gerba

Banco de España ( email )

Alcala 50
Madrid 28014
Spain
(+34)917088132 (Phone)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

CES Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Emmanuel V. Pikoulakis

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Tomasz Piotr Wisniewski (Contact Author)

Open University, UK ( email )

Walton Hall
Milton Keynes, Buckinghamshire MK7 6AA
United Kingdom

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