In this paper we develop a nonlinear version of the efficiency-wage competition model pioneered by Hahn (1987) [27]. Under the assumption that the strategic relationship among optimal wage bids put forward by competing firms is non-monotonic, we show that market wage offers can actually display persistent fluctuations described by a piece-wise non-invertible map. Thereafter, assuming that employers are never constrained in the labour market, we give evidence that in the parameter region of chaotic dynamics, the model is able to reproduce the business cycle regularity according to which in the short-run average wages fluctuate less than aggregate employment. In addition, we show that the efficiency-wage competition among firms leads to some inefficiencies in the wage setting process.
Efficiency-wage competition and nonlinear dynamics / Guerrazzi, Marco; Sodini, Mauro. - In: COMMUNICATIONS IN NONLINEAR SCIENCE & NUMERICAL SIMULATION. - ISSN 1007-5704. - 58:(2017), pp. 62-77. [10.1016/j.cnsns.2017.04.027]
Efficiency-wage competition and nonlinear dynamics
SODINI, MAURO
2017
Abstract
In this paper we develop a nonlinear version of the efficiency-wage competition model pioneered by Hahn (1987) [27]. Under the assumption that the strategic relationship among optimal wage bids put forward by competing firms is non-monotonic, we show that market wage offers can actually display persistent fluctuations described by a piece-wise non-invertible map. Thereafter, assuming that employers are never constrained in the labour market, we give evidence that in the parameter region of chaotic dynamics, the model is able to reproduce the business cycle regularity according to which in the short-run average wages fluctuate less than aggregate employment. In addition, we show that the efficiency-wage competition among firms leads to some inefficiencies in the wage setting process.File | Dimensione | Formato | |
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