The rise of goods-market competition and the fall of nominal wage contracting: Endogenous wage contracting in a multisector economy

Openness, the sacrifice ratio, and inflation: Is there a puzzle?

“…Spot labor markets determine their nominal wages in the remaining portion of sectors, 1 − . In a closed-economy version of this basic framework, Duca and VanHoose (2001) show that if risk-neutral firms and risk-averse workers face common aggregate shocks and heterogeneously distributed sector-specific disturbances, the contract share of sectors, , typically lies between zero and unity but declines as the variability of sector-specific disturbances increases relative to the volatility of aggregate shocks. To maintain tractability, we abstract from considerations of disturbances that influence the endogenous determination of the contract share.…”

Openness, centralized wage bargaining, and inflation

“…Spot labor markets determine nominal wages in the portion of firms, 1 െ ߗ, which do not have such contracts. In a closed-economy version of this basic framework, Duca and VanHoose (2001) show that if risk-neutral firms and risk-averse workers face common aggregate shocks and heterogeneously distributed firm-specific disturbances, the contract share of firms ߗ typically lies between zero and unity but declines as the variability of firm-specific disturbances increases relative to the volatility of aggregate shocks. To maintain tractability, we abstract from considerations of disturbances that influence the endogenous determination of the share of firms with nominal wage contract.…”

Openness, income-tax progressivity, and inflation

“…Spot labor markets determine nominal wages in the portion of firms, 1-Ω, that do not have such contracts. Duca and VanHoose (2001) have shown in a closed-economy version of this basic framework that if risk-neutral firms and risk-averse workers face common aggregate shocks and heterogeneously distributed firm-specific disturbances, Ω typically lies between zero and unity but declines as the variability of firm-specific disturbances increases relative to the volatility of aggregate shocks. To maintain tractability, we treat Ω as an exogenous parameter and thereby abstract from considerations of disturbances that influence the share of firms with nominal wage contracts.…”