Downward Wage Rigidity in a Model of Equal Treatment Contracting

Pedro Martins; Andrew Snell; Jonathan Thomas

doi:10.1111/j.1467-9442.2010.01628.x

Downward Wage Rigidity in a Model of Equal Treatment Contracting

Pedro Martins, Andrew Snell, Jonathan Thomas

School of Economics

Research output: Contribution to journal › Article › peer-review

Abstract / Description of output

Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminately based on year of entry to the firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward-looking firms take into account these constraints. We show that there is a frontloading incentive that leads to a simple solution in the case of certainty. Using productivity data from the postwar US economy, we analyse the ability of the model to match certain stylised labour market facts.

Original language	English
Pages (from-to)	841–863
Number of pages	23
Journal	The Scandinavian Journal of Economics
Volume	112
Issue number	4
Early online date	15 Nov 2010
DOIs	https://doi.org/10.1111/j.1467-9442.2010.01628.x
Publication status	Published - Dec 2010

Keywords / Materials (for Non-textual outputs)

Labour contracts
business cycle
unemployment;
equal treatment
downward rigidity
cross-contract restrictions

Access to Document

10.1111/j.1467-9442.2010.01628.x

Downward Wage Rigidity in a Model of Equal Treatment Contracting
This is the pre-peer reviewed version of the following article: Martins, P., Snell, A., & Thomas, J. (2010). Downward Wage Rigidity in a Model of Equal Treatment Contracting. The Scandinavian Journal of Economics, 112(4), 841–863, which has been published in final form at: http://dx/doi.org/10.1111/j.1467-9442.2010.01628.x
Accepted author manuscript, 403 KB

http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9442.2010.01628.x/abstract;jsessionid=922EC6FBFC5D82C00AC3F541E76E56FF.d03t02

Cite this

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title = "Downward Wage Rigidity in a Model of Equal Treatment Contracting",

abstract = "Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminately based on year of entry to the firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward-looking firms take into account these constraints. We show that there is a frontloading incentive that leads to a simple solution in the case of certainty. Using productivity data from the postwar US economy, we analyse the ability of the model to match certain stylised labour market facts.",

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AU - Snell, Andrew

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AB - Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminately based on year of entry to the firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward-looking firms take into account these constraints. We show that there is a frontloading incentive that leads to a simple solution in the case of certainty. Using productivity data from the postwar US economy, we analyse the ability of the model to match certain stylised labour market facts.

KW - Labour contracts

KW - business cycle

KW - unemployment;

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KW - downward rigidity

KW - cross-contract restrictions

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SP - 841

EP - 863

JO - The Scandinavian Journal of Economics

JF - The Scandinavian Journal of Economics

IS - 4

ER -

Downward Wage Rigidity in a Model of Equal Treatment Contracting

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COHORT EFFECTS WITHIN FIRMS, AND THEIR IMPLICATIONS FOR LABOUR MARKET OUTCOMES AND THE BUSINESS CYCLE

SELF-ENFORCING AND DYNAMIC RELATIONAL CONTRACTS

Nonlinear threshold error correction in panels

Cite this

Downward Wage Rigidity in a Model of Equal Treatment Contracting

Abstract / Description of output

Keywords / Materials (for Non-textual outputs)

Access to Document

Other files and links

Fingerprint

Projects

COHORT EFFECTS WITHIN FIRMS, AND THEIR IMPLICATIONS FOR LABOUR MARKET OUTCOMES AND THE BUSINESS CYCLE

SELF-ENFORCING AND DYNAMIC RELATIONAL CONTRACTS

Nonlinear threshold error correction in panels

Cite this