Macroeconomic Dynamics with Rigid Wage Contracts

Tobias Broer, Karl Harmenberg and Öberg, Erik

No 16764, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model very similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts can be reset very frequently, labor supply behaves in accordance with King et al. (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood et al. (1988), thus allowing significant responses of hours to wage changes.

Date: 2021-12
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Related works:
Journal Article: Macroeconomic Dynamics with Rigid Wage Contracts (2023)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2023)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2023)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2021)
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