Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics?

Meghana Gaur, John R. Grigsby, Jonathon Hazell and Abdoulaye Ndiaye

No 31722, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We introduce dynamic incentive contracts into a model of unemployment dynamics and present three results. First, wage cyclicality from incentives does not dampen unemployment dynamics: the response of unemployment to shocks is first-order equivalent in an economy with flexible incentive pay and without bargaining, vis-á-vis an economy with rigid wages. Second, wage cyclicality from bargaining dampens unemployment dynamics through the standard mechanism. Third, our calibrated model suggests 46% of wage cyclicality in the data arises from incentives. A standard model without incentives calibrated to weakly procyclical wages, matches unemployment dynamics in our incentive pay model calibrated to strongly procyclical wages.

JEL-codes: E24 E32 J33 J41 J64 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-hrm, nep-lab and nep-mac
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Working Paper: Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics? (2023)
Working Paper: Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics? (2023)
Working Paper: Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics? (2023)
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