Rigid wage-setting and the effect of a supply shock,fiscal and monetary policies on Chinese economy by a CGE analysis

The purpose of this paper is to present a computable general equilibrium (CGE) model of the Chinese economy which includes rigid wage-setting and integration of real and financial sectors, and to apply it to a quantitative evaluation of the oil price changes and the fiscal and monetary policies. The policy simulation shows whether the wage rate is flexible or rigid is crucial for the evaluation of various policy measures. Furthermore, the fields of application of the model are extended from the industry-related problems to the macroscopic ones such as inflation, stabilization policies and so on.     

The Non-equivalence Revisited: Staggered Price and Wage Contracts

Abstract

Staggered wage-setting and price-setting have frequently been used to construct business cycle models that can replicate long-lasting real effects of monetary shocks. We examine how the two seemingly equivalent sources of nominal rigidities compare in generating persistence in real output following monetary expansion. We show that staggered wage-setting is in general better able to generate persistence, because it can lower the procyclicality of marginal cost considerably more than staggered price-setting does.     

MODELLING INFLATION IN SOUTH AFRICA: A MULTIVARIATE COINTEGRATION ANALYSIS

We employ an expectations augmented Phillips curve framework to investigate the link between inflation, unit labour costs, the output gap, the real exchange rate and inflation expectations. Using multivariate cointegration techniques, we find evidence consistent with mark‐up behaviour of output prices over unit labour costs. Most importantly, we find that the mark‐up in the South African economy is much higher than in the U.S. For South Africa we find a markup of about 30 per cent: three times as high as the 10 per cent markup found for the U.S.     

Exploring different measures of wage flexibility in a developing economy context: the case for Turkey

In this paper we use Turkish household labor force data to address a number of conceptual issues pertaining to the wage curve, an empirically derived negative relationship between the real wage level and the local unemployment rate. First, we show that in developing economies where labor markets are prone to high degree of segmentation by skill level, local unemployment rates disaggregated by education provide more accurate measures of the degree of group-specific wage competition and hence yield more robust results of the wage curve analyses. Second, we estimate the wage curve using various definitions of the unemployment rate, including discouraged and marginally attached workers, and the long-term unemployment rate to explore the most relevant measure of local labor market tension in the wage setting process. We find that broader definitions of unemployment serve as a more effective reference point in measuring wage flexibility for women, whose attachment to the labor market is substantially weak in the Turkish context; while for men the official and long-term unemployment rates perform well. Finally, using quantile regression we show that wage responsiveness to unemployment cannot be assumed to be constant along the wage distribution. In the Turkish case, we find a higher unemployment elasticity of wages around the median segment of wage distribution. This effect is more pronounced for women.     

Wage-setting coordination in a small open economy*

This paper studies wage-setting coordination in a two-sector, open economy dynamic stochastic general equilibrium model. Two large sectoral unions anticipate the effects of their wage demands on aggregate variables. In an open economy, there are externalities that the unions can take into account to increase aggregate welfare, but the strategic interaction between the sectoral unions tends to erode this gain. When wage coordination takes place through a wage norm set by either of the sectors, this minimizes the strategic interaction. However, wage norms create welfare losses as sector-specific wage adjustment is required to make an efficient adjustment to shocks.