Sticky Wage Models with a Pro-Cyclical Real Wage

6 Pages Posted: 28 Feb 2017

See all articles by Robert G. James

Robert G. James

California State University, Chico

Date Written: February 26, 2017

Abstract

It is generally believed that the sticky wage model implies a counter-cyclical real wage and evidence of a pro-cyclical real wage has been interpreted as an “unsatisfactory feature of the sticky wage model.” (Shapiro, 1987). The purpose of this paper is to demonstrate a fallacy in this interpretation. Specifically, it is shown that the sticky wage model is consistent with a pro-cyclical real wage if the wage elasticity of labor supply to an individual firm is finite.

Keywords: Sticky Wage, Business Cycles, Real Wage, Wage Elasticity

JEL Classification: E30, E32, J20, J30, J47

Suggested Citation

James, Robert G., Sticky Wage Models with a Pro-Cyclical Real Wage (February 26, 2017). Available at SSRN: https://ssrn.com/abstract=2924099 or http://dx.doi.org/10.2139/ssrn.2924099

Robert G. James (Contact Author)

California State University, Chico ( email )

United States

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