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Fair wages in a New Keynesian model of the business cycle
Journal article   Peer reviewed

Fair wages in a New Keynesian model of the business cycle

Jean-Pierre Danthine and André Kurmann
Review of economic dynamics, v 7(1)
01 Jan 2004
DOI: https://doi.org/10.1016/j.red.2003.07.001
Featured in Collection :   UN Sustainable Development Goals @ Drexel

Abstract

Business cycles Efficiency wages Persistence Sticky prices
We build a New Keynesian model of the business cycle with sticky prices and real wage rigidities motivated by efficiency wages of the gift exchange variety. Compared to a standard sticky price model, our Fair Wage model provides an explanation for structural unemployment and generates more plausible labor market dynamics—notably accounting for the low correlation between wages and employment. The fair wage induced real wage rigidity also significantly reduces the elasticity of marginal cost with respect to output. The smoother dynamics of real marginal cost increase both amplification and persistence of output responses to monetary shocks, thus remedying the well-known lack of internal propagation of standard sticky price models. We take these improvements as a strong endorsement of the addition of real wage rigidities to nominal price rigidities and conclude that the fair wage extension of this paper constitutes a promising platform for an enriched New Keynesian synthesis.

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47 citations in Web of Science
50 citations in Scopus

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UN Sustainable Development Goals (SDGs)

This publication has contributed to the advancement of the following goals:

#8 Decent Work and Economic Growth
#17 Partnerships for the Goals

Source: SDGs in the Output

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Collaboration types
Domestic collaboration
International collaboration
Web of Science research areas
Economics
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