A NOTE ON INFLATION PERSISTENCE IN A FAIR WAGE MODEL OF THE BUSINESS CYCLE

A NOTE ON INFLATION PERSISTENCE IN A FAIR WAGE MODEL OF THE BUSINESS CYCLE

We generalize existing fair wage models to allow effort to vary over the business cycle. When effort is variable, wage fluctuations are partially compensated for by endogenous effort fluctuations, so that the sensitivity of marginal cost to output and employment variations is decreased. This new mec...

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Veröffentlicht in:Macroeconomic dynamics 2009-11, Vol.13 (5), p.673-684
Hauptverfasser: de la Croix, David, de Walque, Gregory, Wouters, Rafael
Format: Artikel
Sprache:eng
Schlagworte:
Business cycles
Economic theory
Efficiency
Employment
Households
Inflation
Labor market
Macroeconomics
Phillips curve
Studies
Utility functions
Wages & salaries
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Zusammenfassung:We generalize existing fair wage models to allow effort to vary over the business cycle. When effort is variable, wage fluctuations are partially compensated for by endogenous effort fluctuations, so that the sensitivity of marginal cost to output and employment variations is decreased. This new mechanism decreases the need for sluggishness to explain the observed high inflation persistence.
ISSN:1365-1005
1469-8056
DOI:10.1017/S1365100509080304