Macroeconomic Dynamics with Rigid Wage Contracts

Tobias Broer, Karl Harmenberg, Per Krusell and Erik Öberg
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Tobias Broer: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Per Krusell: CEPR, Paris
Erik Öberg: Uppsala University

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Abstract: We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with recontracting as in Calvo (1983). The resulting wage-rigidity framework dampens income effects in the short run, thus allowing significant responses of hours to aggregate shocks. In reduced form, the model dynamics are 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 are reset frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are never reset, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988).

Date: 2023-03
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Published in American Economic Review: Insights, 2023, 5 (1), pp.55-72. ⟨10.1257/aeri.20210672⟩

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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 (2021)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04758775

DOI: 10.1257/aeri.20210672

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