Dual Wage Rigidities: Theory and Some Evidence

Insu Kim

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates wage dynamics assuming the potential presence of dual wage stickiness: with respect to both the frequency as well as the size of wage adjustments. In particular, this paper proposes a structural model of wage inflation dynamics assuming that although workers adjust wage contracts at discrete time intervals, they are limited in their abilities to adjust wages as much as they might desire. The dual wage stickiness model nests the baseline model, based on Calvo-type wage stickiness, as a particular case. Empirical results favor the dual sticky wage model over the baseline model that assumes only one type of wage stickiness in several dimensions. In particular, it outperforms the baseline model in terms of goodness of fitness as well as in the ability to explain the observed dynamic correlation between wage inflation and the output gap - which the baseline model fails to capture.

Keywords: Wage inflation; sticky wages; sticky prices; new Keynesian; hybrid. (search for similar items in EconPapers)
JEL-codes: E31 E32 J30 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
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https://mpra.ub.uni-muenchen.de/18345/1/MPRA_paper_18345.pdf original version (application/pdf)

Related works:
Working Paper: Dual Wage Rigidities: Theory and Some Evidence (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:18345

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