Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting

29 Pages Posted: 18 Aug 2009

See all articles by Pedro S. Martins

Pedro S. Martins

Nova School of Business and Economics; IZA Institute of Labor Economics; Global Labor Organization (GLO)

Andy Snell

University of Edinburgh - Economics

Jonathan Thomas

University of Edinburgh - Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a 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. Using simulated productivity data based on the post-war US economy, we analyse the ability of the model to match certain stylised labour market facts.

Keywords: labour contracts, business cycle, unemployment, equal treatment, downward rigidity, cross-contract restrictions

JEL Classification: E32, J41

Suggested Citation

Martins, Pedro S. and Snell, Andy and Thomas, Jonathan P., Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting. IZA Discussion Paper No. 4346, Available at SSRN: https://ssrn.com/abstract=1455508 or http://dx.doi.org/10.2139/ssrn.1455508

Pedro S. Martins (Contact Author)

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

Andy Snell

University of Edinburgh - Economics ( email )

50 George Square
Edinburgh, EH8 9JY
United Kingdom

Jonathan P. Thomas

University of Edinburgh - Economics ( email )

50 George Square
Edinburgh, EH8 9JY, Scotland
United Kingdom
+44 131 650 4515 (Phone)
+44 131 650 4514 (Fax)

HOME PAGE: http://www.st-andrews.ac.uk/~jpt/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

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