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Shirking, Unemployment and Aggregate Fluctuations
Author(s) -
Gomme Paul
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00002
Subject(s) - economics , wage , business cycle , unemployment , efficiency wage , real wages , rigidity (electromagnetism) , econometrics , labour economics , keynesian economics , macroeconomics , structural engineering , engineering
Empirically, real wages exhibit relatively little cyclical variation and a weak cyclical pattern. Early real business cycle (RBC) models predict, to the contrary, large, procyclical real wage movements. Incorporating efficiency wages into a RBC environment would seem promising since one prediction from the efficiency wage literature is real wage rigidity. This paper evaluates a common microfoundation for efficiency wages, the shirking model, with respect to its predictions for real wages within a RBC‐style model. Simulations of the model reveal that it can generate dampened but still strongly procyclical real wage behavior.