Cyclical Movements in Hours and Effort under Sticky Wages

Yongsung Chang and Mark Bils

Macroeconomics from University Library of Munich, Germany

Abstract: We examine the response of a sticky-wage economy to various real and nominal shocks. In addition to variations in hours, we allow for an endogenous response in worker effort per hour. Despite wages being predetermined, the labor market clears through the effort margin. We find that the ability of a sticky-wage model to mimic U.S. business cycles is much improved by allowing for reasonable effort movements. The model also provides a ready explanation for the finding that TFP is negatively affected by nominal shocks.

Keywords: Sticky Wages; Endogenous Effort; Productivity; Business Cycles (search for similar items in EconPapers)
JEL-codes: E32 E52 J22 J31 (search for similar items in EconPapers)
Date: 2002-05-01
New Economics Papers: this item is included in nep-dge
Note: Type of Document - pdf; prepared on IBM PC; to print on HP;
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0204004

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