Wages, business cycles, and comparative advantage

Yongsung Chang

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

The standard equilibrium models of business cycles face a puzzling fact that total hours vary greatly over the business cycle without much variation in aggregate wages. The model augments the standard RBC model to include Lucas span of control. Distinction between market and non-market and managerial and non-managerial work makes aggregate wages far less cyclical than individual wages. Cross-sectional comparative advantage between market and non-market sector in the workforce substantially increases the response of aggregate hours to shifts in relative productivity. As a result, the model provides a reconciliation between data and equilibrium macroeconomics.

Original languageEnglish
Pages (from-to)143-171
Number of pages29
JournalJournal of Monetary Economics
Volume46
Issue number1
DOIs
Publication statusPublished - 2000 Aug

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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