Wage stickiness from the demand side
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Wage stickiness from the demand side by Peter E. Earl

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Published by University of Stirling in Stirling .
Written in English

Book details:

Edition Notes

Statementby Peter E. Earl and Keith W. Glaicester.
SeriesDiscussion papers in economics, finance and investment / University of Stirling -- No.78, Discussion papers in economics, finance and investment -- No.78.
ContributionsGlaicester, Keith W.
ID Numbers
Open LibraryOL13774440M

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  Definition – Sticky wages is a concept to describe how in the real world, wages may be slow to change and get stuck above the equilibrium because workers resist nominal wage cuts. Wages can be ‘sticky’ for numerous reasons including – the role of trade unions, employment contracts, reluctance to accept nominal wage cuts and ‘efficiency wage’ theories. Demand and Supply I The demand side of the neoclassical and New Keynesian models are the same I Di erences arise on the supply side I Two basic variants (or mixture of the two): wage stickiness and/or price stickiness I Mathematically, what we are going to assume is that either the nominal wage or price level are predetermined (i.e. exogenous) I This will require some change in the labor. Downloadable (with restrictions)! Erceg et al. (J Monet Econ –, ) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using a Bayesian econometric approach, both models are estimated with US quarterly data of the Great Moderation. Co-ordination problem explains why wages are sticky downwards, that is why wages do not fall immediately when aggregate demand falls. If one firm due to decrease in demand for goods cuts its wages, while other firms do not, then the workers will get annoyed and leave the firm. But if firms coordinate, they can cut wages together.

Sticky prices, sticky wages, and also unemployment Miguel Casaresy Universidad Pœblica de Navarra January Abstract This paper shows a New Keynesian model where wages are set at the value that matches household™s labor supply with –rm™s labor demand. Subsequently, wage stickiness brings industry-level unemployment ⁄uctuations.   Wage Stickiness. The concept of price stickiness can also apply to wages. When sales fall in a company, the company doesn’t resort to cutting wages. As . model with sticky wages in addition to sticky prices, following Erceg et al. (). Finally, the small open economy model established by Gali and Monacelli () is derived in chapter Dynare codes are provided in the appendix. A few words about notation: Variables in levels are denoted with capital letters, logged variables with small File Size: 1MB. Start studying ECO Learn vocabulary, terms, and more with flashcards, games, and other study tools. Search. Browse. Wage stickiness tends to cause _____ unemployment. what is the effect of a negative demand-side shock?

No, sticky wages aren’t what happens when you do the payroll while eating a honey bun. Rather, sticky wages are when workers’ earnings don’t adjust quickly to changes in labor market conditions. That can slow the economy’s recovery from a recession. When demand for a . To see how nominal wage and price stickiness can cause real GDP to be either above or below potential in the short run, consider the response of the economy to a change in aggregate demand. Figure "Deriving the Short-Run Aggregate Supply Curve" shows an economy that has been operating at potential output of $12, billion and a price level. demand in the presence of sticky wages and prices on which we concentrate in this book with a completely different one, where it is shifts on the supply side of the economy such as technological change that produce booms and recessions. This second approach is called the Real Business Cycle model. 1. Aggregate demandFile Size: 2MB. On the supply side, the link between price and wage rigidity is stronger in the services sector because, as we find later, labor accounts for a larger share in their total costs while wage.