Elsevier

Economics Letters

Volume 30, Issue 2, August 1989, Pages 125-128
Economics Letters

Efficiency wages, wage indexation and macroeconomic stabilization

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Abstract

This paper examines the effects of nominal wage indexation on output variability when effort affects the productivity of labor inputs. Given this specification, it is shown that, contrary to Gray's (1976) result, full wage indexation is not destabilizing in the presence of supply shocks.

References (4)

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Cited by (5)

  • Monetary shocks with variable effort

    2005, Journal of Macroeconomics
    Citation Excerpt :

    Waller also shows that, unlike models without effort, indexing wages will not have a destabilizing effect on output in the face of supply shocks. In this paper I generalize Waller’s (1989) model, replacing the Solow (1979) Cobb–Douglas model of efficiency units with a constant elasticity of substitution function. Accordingly, the output effect of monetary shocks will only be zero if the elasticity of substitution is unity (the Cobb–Douglas case).

  • Welfare costs of sticky wages when effort can respond

    2003, Journal of Monetary Economics

  • Efficiency wages and the balanced budget theorem

    1999, Atlantic Economic Journal

  • ACHIEVING MACROECONOMIC STABILITY: THE ROLE OF WAGE INDEXATION AND EXCHANGE RATE POLICY

    1994, Australian Economic Papers

  • Common Elements of Efficiency Wage Theories: What Relevance for Developing Countries?

    1994, The Journal of Development Studies
∗

I would like to thank David VanHoose for his comments and suggestions on this paper.

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