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Dynamic of Employment and Wages Incentives

Author

Listed:
  • Faria, Joao
  • Jellal, Mohamed

Abstract

This paper studies a dynamic model with efficiency wages and adjustment costs associated with hiring and firing decisions. With linear adjustment costs, the optimal efficiency wage and employment are affected by the real interest rate and adjustment costs. When lumpy costs or convex adjustment costs (symmetric or asymmetric) are taken into account, the interest rate and the adjustment costs do not play any role in determining the equilibrium efficiency wage and level of employment.

Suggested Citation

  • Faria, Joao & Jellal, Mohamed, 2009. "Dynamic of Employment and Wages Incentives," MPRA Paper 17183, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17183
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    File URL: https://mpra.ub.uni-muenchen.de/17183/1/MPRA_paper_17183.pdf
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    References listed on IDEAS

    as
    1. Matthew D. Shapiro, 1986. "The Dynamic Demand for Capital and Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 513-542.
    2. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Stephen Nickell, 1984. "An Investigation of the Determinants of Manufacturing Employment in the United Kingdom," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(4), pages 529-557.
    5. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-689, September.
    6. Fair, Ray C, 1985. "Excess Labor and the Business Cycle," American Economic Review, American Economic Association, vol. 75(1), pages 239-245, March.
    7. Jellal, Mohamed & Zenou, Yves, 2000. "A dynamic efficiency wage model with learning by doing," Economics Letters, Elsevier, vol. 66(1), pages 99-105, January.
    8. repec:bla:econom:v:63:y:1996:i:251:p:359-67 is not listed on IDEAS
    9. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 321-321.
    10. Fay, Jon A & Medoff, James L, 1985. "Labor and Output over the Business Cycle: Some Direct Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 638-655, September.
    11. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
    12. Faria, Joao Ricardo, 2000. "Supervision and effort in an intertemporal efficiency wage model: the role of the Solow condition," Economics Letters, Elsevier, vol. 67(1), pages 93-98, April.
    13. repec:bla:econom:v:58:y:1991:i:232:p:501-14 is not listed on IDEAS
    14. Aizcorbe, Ana M, 1992. "Procyclical Labour Productivity, Increasing Returns to Labour and Labour Hoarding in Car Assembly Plant Employment," Economic Journal, Royal Economic Society, vol. 102(413), pages 860-873, July.
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    More about this item

    Keywords

    Wage determination; Jobs creation;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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