<abstract xmlns="http://www.w3.org/1999/xhtml"><p>We introduce “fair” wages in a general-equilibrium model where worker’s effort is unobservable and investigate whether such a mechanism can quantitatively account for the degree of real wage rigidity in the Bulgarian labor markets, as documented in Lozev, Vladova, and Paskaleva (2011) and Paskaleva (2016). In contrast to Danthine and Kurmann (2004), we internalize the effect that past wages have on the current effort level. We calibrate the model to Bulgarian data (1999-2016), and quantify the effect of technological shocks on hours and wages in the theoretical setup. Overall, the calibrated model with “fair” wages performs poorly when it comes to the relative volatilities of labor market variables. This is because aggregate labor market conditions, as proxied by the employment rate and past aggregate wages, turn out not to be quantitatively important for business cycles in Bulgaria.</p></abstract>

We introduce “fair” wages in a general-equilibrium model where worker’s effort is unobservable and investigate whether such a mechanism can quantitatively account for the degree of real wage rigidity in the Bulgarian labor markets, as documented in Lozev, Vladova, and Paskaleva (2011) and Paskaleva (2016). In contrast to Danthine and Kurmann (2004), we internalize the effect that past wages have on the current effort level. We calibrate the model to Bulgarian data (1999-2016), and quantify the effect of technological shocks on hours and wages in the theoretical setup. Overall, the calibrated model with “fair” wages performs poorly when it comes to the relative volatilities of labor market variables. This is because aggregate labor market conditions, as proxied by the employment rate and past aggregate wages, turn out not to be quantitatively important for business cycles in Bulgaria.

Are “fair” wages quantitatively important for business cycle fluctuations in Bulgaria?

Review of Economic Perspectives

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

We introduce “fair” wages in a general-equilibrium model where worker’s effort is unobservable and investigate whether such a mechanism can quantitatively...

Are “fair” wages quantitatively important for business cycle fluctuations in Bulgaria?

Publié en ligne: 11 mai 2020

Pages: 91 - 105

Reçu: 03 avr. 2019

Accepté: 10 déc. 2019

DOI: https://doi.org/10.2478/revecp-2020-0005

Mots clés
Business cycles, unobservable effort, fair wages, unemployment, Bulgaria

© 2020 Aleksandar Vasilev, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Are “fair” wages quantitatively important for business cycle fluctuations in Bulgaria?

Publié en ligne: 11 mai 2020

Pages: 91 - 105

Reçu: 03 avr. 2019

Accepté: 10 déc. 2019

DOI: https://doi.org/10.2478/revecp-2020-0005

Mots clésBusiness cycles, unobservable effort, fair wages, unemployment, Bulgaria

© 2020 Aleksandar Vasilev, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Mots clés
Business cycles, unobservable effort, fair wages, unemployment, Bulgaria