Intertemporal Wage Smoothing

Memo 1995-7

Posted: 10 Oct 1998

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Abstract

Capital market imperfections make the future purchasing power of wage income risky. Therefore, current nominal wages may have intertemporal implications which affect wage determination. The influence of consumption risk on wage setting is analysed in a general equilibrium model with an imperfectly competitive labour market (monopoly union). It is shown that the adjustment process implies wage smoothing which causes nominal wages to be less flexible than prices, and moreover employment shows more variability over the business cycle than real wages no matter whether the cycle is driven by real or nominal shocks.

JEL Classification: J39

Suggested Citation

Andersen, Torben M., Intertemporal Wage Smoothing. Memo 1995-7, Available at SSRN: https://ssrn.com/abstract=6477

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

University Park
Building 322
DK-8000 Aarhus C
Denmark
+45 8 942 1609 (Phone)
+45 8 613 6334 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
727
PlumX Metrics