On household labour supply in sticky-wage HANK models

Rafael Gerke, Sebastian Giesen, Matija Lozej and Joost Röttger

No 01/2024, Discussion Papers from Deutsche Bundesbank

Abstract: Heterogeneous-agent New Keynesian models with sticky nominal wages usually assume that wage-setting unions demand the same amount of hours from all households. As a result, unions do not take account of the fact that (i) households are heterogeneous in their willingness to work, and that (ii) some households might have to work more hours than they would like to. In this paper, we consider two departures from the standard modelling approach. First, we consider a model version in which unions can demand different hours from different households, directly taking household heterogeneity into account. In this case, we show that unions find it optimal to ration hours worked for all households, such that nobody works more than desired. Compared to the standard case in which all households work the same amount by assumption, the response of output, wages and inflation to monetary policy shocks becomes notably less pronounced. This attenuation reflects that hours worked respond differently across the income distribution. The second model version we consider maintains the assumption that all households work the same amount but prohibits unions from requiring any household to work more than it would like to. This modification substantially lowers the effective stickiness of nominal wages, resulting in markedly different wage and inflation dynamics.

Keywords: Heterogeneous households; HANK; labour supply; nominal wage rigidity; monetary policy (search for similar items in EconPapers)
JEL-codes: D31 E21 E24 E31 E52 E58 J22 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-dge, nep-lma, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/282992/1/1880295172.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:282992

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().