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>The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy
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The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy
This paper shows how heterogeneity in wage setting and a link between nominal wage flexibility and goods-market competition arise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral volatility increases the relative variance of real Walrasian wages. Given this tradeoff, the prevalence of nominal wage contracting reflects both the relative volatility of aggregate versus sectoral disturbances and the overall degree of goods-market market competition. We find that these variables help explain the decline in unionization (a proxy for contracting) in the United States.
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