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Welfare Costs of Sticky Wages When Effort Can Respond

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  • Yongsung Chang

    (University of Pennsylvania)

  • Mark Bils

    (University of Rochester)

Abstract

We examine the impact of wage stickiness when employment has an effort as well as hours dimension. Despite wages being predetermined, the labor market clears through the effort margin. Consequently, welfare costs of wage stickiness are potentially much, much smaller.

Suggested Citation

  • Yongsung Chang & Mark Bils, 2002. "Welfare Costs of Sticky Wages When Effort Can Respond," Macroeconomics 0204003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0204003
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    References listed on IDEAS

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    Cited by:

    1. Moon, Weh-Sol, 2018. "The Business Cycle With Nominal Contracts And Search Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 22(2), pages 307-330, March.
    2. Yongsung Chang & Mark Bils, 2002. "Cyclical Movements in Hours and Effort under Sticky Wages," Macroeconomics 0204004, University Library of Munich, Germany.
    3. Kim, Minseung & Shim, Myungkyu, 2020. "Variable Effort, Business Cycles, and Economic Welfare," Economics Letters, Elsevier, vol. 196(C).
    4. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    5. Richard Holt, 2004. "Sticky prices, labour market rigidities and exchange rate puzzles," Money Macro and Finance (MMF) Research Group Conference 2003 47, Money Macro and Finance Research Group.
    6. Matthias Paustian, 2004. "Welfare Effects of Monetary Policy Rules in a Model with Nominal Rigidities and Credit Market Frictions," Econometric Society 2004 Far Eastern Meetings 597, Econometric Society.
    7. Adrian Masters, 2012. "The value of leisure or disutility of work: Wage dispersion in a model of search with endogenous effort," Discussion Papers 12-07, University at Albany, SUNY, Department of Economics.
    8. Moon, Weh-Sol, 2011. "Business cycle with nominal contracts and search frictions," MPRA Paper 31716, University Library of Munich, Germany.

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    More about this item

    Keywords

    Sticky Wage; Endogenous Effort; Welfare Cost;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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