Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics?

Meghana Gaur, John Grigsby, Jonathon Hazell and Abdoulaye Ndiaye
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Meghana Gaur: Princeton University
John Grigsby: Princeton University
Jonathon Hazell: London School of Economics and Political Science

Working Papers from Princeton University. Economics Department.

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-Ã -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.

Keywords: Dynamic Incentive Pay; Unemployment Dynamics (search for similar items in EconPapers)
JEL-codes: J64 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-dge, nep-hrm and nep-lab
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https://jadhazell.github.io/website/Bonus_Question.pdf

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2023-05

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