Taxes, Risk Aversion and Unemployment Insurance as Causes of Wage Rigidity
No 160, Working Paper Series from Trade Union Institute for Economic Research
Recent empirical evidence has shown that nominal wages are more rigid among blue-collar (low income) workers than among white-collar (high income) workers. We show theoretically that employees in crisis-ridden firms will reject wage cut proposals that save jobs if risk aversion is great, replacement rates high and marginal taxes low. These factors for can explain why wage rigidity is less intense among high-income earners than among low-income earners. We argue, that with economic growth nominal wages should become more flexible, since marginal taxes increase, the marginal utility of income drops, normally, replacement rates fall.
Keywords: Wage rigidity; Marginal taxes; Risk aversion; Unemployment (search for similar items in EconPapers)
JEL-codes: H20 J30 J65 (search for similar items in EconPapers)
Pages: 16 pages
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:fiefwp:0160
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