TY  - JOUR
AU  - Bils,Mark
AU  - Chang,Yongsung
TI  - Wages and the Allocation of Hours and Effort
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7309
PY  - 1999
Y2  - August 1999
UR  - http://www.nber.org/papers/w7309
L1  - http://www.nber.org/papers/w7309.pdf
N1  - Author contact info:
Mark Bils
Department of Economics
University of Rochester
Rochester, NY 14627
Tel: 585/275-0488
Fax: 585/256-2309
E-Mail: bils@troi.cc.rochester.edu

Yongsung Chang
Department of Economics
University of Rochester
Rochester, NY 14627
Tel: 1-585-275-1871
Fax: 1-585-256-2309
E-Mail: ychang14@mail.rochester.edu
AB  - We examine the impact of wage stickiness when employment has an effort as well as hours dimension. Despite wages being predetermined, the labor market clears through the effort margin. We compare this model quantitatively to models with flexible and sticky wages, but no effort margin. Allowing for responses in effort dramatically improves the ability of a sticky-wage model to mimic U.S. business cycles. The model produces fluctuations in hours that are intermediate to the standard flexible-wage and sticky-wage models; but output and consumption behave much like in the flexible-wage economy.  Consequently, welfare costs of wage stickiness are potentially much, much smaller if one entertains an effort dimension.
ER  -