Sticky Wages in a World of Ideas

ISER DP No. 1159

43 Pages Posted: 9 Feb 2022

See all articles by Kevin X. D. Huang

Kevin X. D. Huang

Federal Reserve Bank of Philadelphia; Vanderbilt University - College of Arts and Science - Department of Economics

Munechika Katayama

Waseda University - School of Political Science and Economics

Mototsugu Shintani

University of Tokyo - Research Center for Advanced Science and Technology (RCAST)

Takayuki Tsuruga

Osaka University, Institute of Social and Economic Research

Date Written: February 2, 2022

Abstract

The search for new ideas by profit-seeking firms and knowledge spillovers are well-known and fundamental sources of modern economic growth. This paper examines the implications of idea production and knowledge capital for monetary business cycles. We construct a sticky-wage model where workers produce goods based on firm-specific knowledge capital and researchers develop new ideas aided by the economywide stock of knowledge. As a quantitatively small group in the economy, researchers are inconsequential for the real effects of monetary shocks when the returns to research are low. However, this intuitive conclusion can be overturned when the returns to research are high. In this situation, monetary shocks can have significant real effects as long as wages are sticky for researchers, even if wages are perfectly flexible for workers, who are quantitatively dominant in the economy.

Keywords: Ideas, Nonrivalry, Knowledge Capital, Sticky Wages, Monetary Neutrality

JEL Classification: E22, E24, E31, E52, O50

Suggested Citation

Huang, Kevin X. D. and Huang, Kevin X. D. and Katayama, Munechika and Shintani, Mototsugu and Tsuruga, Takayuki, Sticky Wages in a World of Ideas (February 2, 2022). ISER DP No. 1159, Available at SSRN: https://ssrn.com/abstract=4025693 or http://dx.doi.org/10.2139/ssrn.4025693

Kevin X. D. Huang

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Munechika Katayama

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

Mototsugu Shintani

University of Tokyo - Research Center for Advanced Science and Technology (RCAST) ( email )

4-6-1 Komaba Megro-ku
Tokyo, 153-8904
Japan

Takayuki Tsuruga (Contact Author)

Osaka University, Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, 567-0047
Japan

HOME PAGE: http://www.iser.osaka-u.ac.jp/~tsuruga/

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