The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy

John Duca and David VanHoose

No 9805, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper shows how heterogeneity wage-setting and a link between nominal wage flexibility andg goods-market competition rise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral volatility increase the relative variance of real Walrasian wages. Given this tradeoff, the prevalence of nominal wage contracting reflects both the relative volatility of aggregate versus sectoral disturbances and the overall degree of goods-market market competition. We find that these variables help explain the decline in unionization (a proxy for contracting in) the United States.

Pages: 39 pages
Date: 1998
Note: Published as: Duca, John V. and David D. VanHoose (2001), "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics 23 (1): 1-29.
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Journal Article: The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy (2001)
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