The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy

Posted: 22 Oct 2000

See all articles by John V. Duca

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas; Oberlin College

David D. VanHoose

Baylor University - Department of Economics

Abstract

This paper shows how heterogeneity in wage setting and a link between nominal wage flexibility and goods-market competition arise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral volatility increases the relative variance of real Walrasian wages. Given this trade-off, the prevalence of nominal wage contracting reflects both the relative volatility of aggregate versus sectoral disturbances and the overall degree of goods-market market competition. We find that these variables help explain the decline in unionization (a proxy for contracting) in the United States.

JEL Classification: E24, E32

Suggested Citation

Duca, John V. and VanHoose, David D., The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy. Available at SSRN: https://ssrn.com/abstract=238343

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Oberlin College

Oberlin, OH 44074
United States

David D. VanHoose (Contact Author)

Baylor University - Department of Economics ( email )

P.O. Box 98003
Waco, TX 76798-8003
United States

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