Wage Rigidity and Information: Relativities and Target Rates of Wage Growth

Simon Burgess ()

Oxford Economic Papers, 1988, vol. 40, issue 3, 523-34

Abstract: Two popular ideas in models of wage determination are that workers care about wage relativities or have a target rate of wage growth. Th is paper shows how these two institutions can arise as optimizing res sponses in the context of bilateral asymmetric information with sunk costs. Therefore, while they may be inefficient in a first-best sense, they will improve the operation of the labor market in a second-best world. Copyright 1988 by Royal Economic Society.

Date: 1988
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