Sticky-Wage Models and Knowledge Capital
ISER DP No. 1046
23 Pages Posted: 29 Jan 2019
Date Written: January 15, 2019
We present a sticky-wage model with two types of labors: while worker's labor contributes to current production, researcher's work helps develop new ideas to add to firm's knowledge capital that enhances its productivity for many periods. The long-lived effect of knowledge capital on productivity is analogous to the long-lasting effect of consumer durables on utility in the sticky-price model of Barsky, House and Kimball (2007). Our sticky-wage model generates the near monetary neutrality result similar to the result in their sticky-price model, if returns to researchers' labor are low in developing knowledge capital. We show, however, that the relative role of the pricing of the two production inputs analogous to consumption durables and nondurables in their sticky-price model is completely reversed in our sticky-wage model.
Keywords: Intangible Capital, Wage Rigidity, Monetary Policy
JEL Classification: E22, E24, E31, E52
Suggested Citation: Suggested Citation