Uniform and Nonuniform Staggering of Wage Contracts

39 Pages Posted: 6 Jul 2010

See all articles by Leif Danziger

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

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Abstract

This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provides a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty.

Keywords: uniform staggering, nonuniform staggering, monetary policy shocks, strategic substitutability, wage contracts, contract duration

JEL Classification: E31, E32, J41

Suggested Citation

Danziger, Leif, Uniform and Nonuniform Staggering of Wage Contracts. IZA Discussion Paper No. 5023, Available at SSRN: https://ssrn.com/abstract=1634490

Leif Danziger (Contact Author)

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