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Implicit contracts and the cyclicality of the skill-premium

Panayiotis Pourpourides ()

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 6, 963-979

Abstract: To examine the cyclical behavior of the skill-premium, this paper introduces implicit labor contracts in a DSGE model where production is characterized by capital-skill complementarity and the utilization of capital is endogenous. It is shown that this model can reproduce the observed cyclical patterns of wages and the skill-premium. The feature of capital-skill complementarity coupled with variable capital utilization rates does not come at odds with the acyclical behavior of the skill-premium. The paper argues that the skill-complementarity of capital is not a quantitatively significant factor at high frequencies. The key aspects are the contracts and the capital utilization margin.

Keywords: Implicit; contracts; Wages; Skill-premium; Business; cycles; Capital-Skill; complementarity (search for similar items in EconPapers)
Date: 2011
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Working Paper: Implicit Contracts and the Cyclicality of the Skill-Premium (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:6:p:963-979

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