Shirking, Endogenous Lay-off Rates and the A-cyclicality of the Real Wage

Gerhard Rünstler ()

No 350, WIFO Working Papers from WIFO

Abstract: The paper extends the Shapiro-Stiglitz (1987) efficiency wage model by endogenising the probability of worker displacement as a function of the change in the firm's employment. This creates counter-cyclical variation in the wage mark-up and thereby generates real wage persistence. A New Keynesian DSGE model equipped with this extension replicates the empirical facts of a very limited response of the real wage to the business cycle together with a lagged hump-shaped response of employment to output.

Keywords: Efficiency wages; shirking; real wage persistence; New Keynesian models (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-10
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2009:i:350

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