Sticky Wage Models and Labor Supply Constraints

Zhen Huo and José-Víctor Ríos-Rull

American Economic Journal: Macroeconomics, 2020, vol. 12, issue 3, 284-318

Abstract: In sticky wages models (either à la Calvo or à la Rotemberg), labor is solely determined by the demand side. However, a change of circumstances may make labor demand higher than agents' willingness to work. We find that workers are required to work against their will between 15 percent and 30 percent of the time (with 5 percent wage markup, less with higher markups and in Rotemberg models). Estimating models with the minimum of the demand and supply of labor instead of the demand-determined quantity yields different and unappealing properties. Hence, special attention should be paid to possible violations of the labor supply constraint.

JEL-codes: E12 E24 E32 J22 J23 J31 J51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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DOI: 10.1257/mac.20180290

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