Sticky Wage Models and Labor Supply Constraints
- (pp. 284-318)
Abstract
In sticky wages models (either à la Calvo or à la Rotemberg), labor is solely determined by the demand side. However, a change of circumstances may make labor demand higher than agents' willingness to work. We find that workers are required to work against their will between 15 percent and 30 percent of the time (with 5 percent wage markup, less with higher markups and in Rotemberg models). Estimating models with the minimum of the demand and supply of labor instead of the demand-determined quantity yields different and unappealing properties. Hence, special attention should be paid to possible violations of the labor supply constraint.Citation
Huo, Zhen, and José-Víctor Ríos-Rull. 2020. "Sticky Wage Models and Labor Supply Constraints." American Economic Journal: Macroeconomics, 12 (3): 284-318. DOI: 10.1257/mac.20180290Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- J51 Trade Unions: Objectives, Structure, and Effects
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