Abstract
AbstractIn this paper, we explore the dynamics of working hours and wages in a model economy where a firm and its workforce are linked to each other by an implicit contract. Specifically, we develop a deterministic and a stochastic framework in which the firm sets its level of labor utilization by considering that workers' earnings tend to adjust in the direction of a fixed level. Without any uncertainty about firm's profitability, we show that the existence and the properties of stationary solutions rely on the factors that usually determine the enforceability of contracts and we demonstrate that wages move countercyclically towards the allocation preferred by the firm. Moreover, we show that adding uncertainty does not overturn the countercyclical pattern of wages but is helpful in explaining their dynamic behavior in response to demand shocks as well as their typical stickiness observed at the macrolevel.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.