Working Paper Series
Nils Henrik Schager
Search Theory, Downward Money Wage Rigidity and the Micro Foundations of the Phillips Curve
Abstract: The present paper has two aims. The first one concerns
primarily an issue of method. I set up and analyse an explicitly stochastic
model of the optimal behaviour of a firm, which recruits from a search
labour market. The second aim of my paper concerns very much an issue of
substance in economics. I show that when the firm is not allowed to
decrease its money wage, its optimal response to lower unemployment is to
increase its wage, if a plausible (and testable) condition with regard to
its expected horizon is met. Hence search theory predicts the existence of
a micro Phillips relation under plausible assumptions.
Keywords: Wage rigidity; job search; phillips curve; optimal firm behaviour; (follow links to similar papers)
JEL-Codes: J23; J31; J62; (follow links to similar papers)
26 pages, December 1988
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