Uniform and nonuniform staggering of wage contracts |
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| Authors: | Leif Danziger |
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| Affiliation: | 1. University of Massachusetts Boston. 100 Morrissey Blvd. Boston, MA, 02125, 617-287-7678, United States;2. Illinois State University, College of Business, Department of Finance, Insurance and Law, Campus Box 5480. Normal, IL, 61790-5480, 309-438-5861, United States;1. T. Norris Hitchman Endowed Chair, Department of Finance, Mike Ilitch School of Business, Wayne State University, Detroit, MI, United States;2. Lumpkin College of Business and Technology, Eastern Illinois University, Charleston, IL, United States;3. Department of Finance, Mike Ilitch School of Business, Detroit, MI, United States |
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| Abstract: | This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provide a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty. |
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