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Title:Wage Structures, Exchange Rate Regimes, and the Transmission of Disturbances
Author(s):Santos, John Michael
Department / Program:Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, Finance
Economics, Labor
Abstract:The role of wage behavior in open economies is a topic currently receiving attention in the international macroeconomics literature. However, no study has adequately examined the theoretical and policy implications of integrating alternative forms of wage setting behavior into an open macroeconomic framework. This thesis integrates the microeconomics of alternative worker (union) preferences concerning (absolute and relative) real wages and employment with the macro implication of alternative wage-setting arrangements.
In the first theoretical chapter, a basic contracting scheme, which nests alternative models of wage bahavior consistent with alternative worker or union objectives, is developed and then embedded in an endogenous supply structure featuring competitive firms, monopoly unions and (exogenous) staggered contracts. The wage-setting mechanism and the consequent supply structure of the macroeconomy turn critically on the preferences of workers or with respect to wages, employment, and risk. Whenever workers are concerned over relative as opposed to absolute real wages, output persistence and policy nonneutrality emerge as central features of wage setting.
The second theoretical chapter examines the transmission of disturbances in a small open economy under flexible exchange rates when the objective of wage setting is a desired relative wage-employment position versus outstanding contracts. Both temporary nominal wage and permanent monetary disturbances get into current contracts and, through the relative wage channel, generate persistent effects on output which are only asymptotically eliminated.
The final theoretical chapter addresses the issue of macro stablization in a small open economy under alternative union wage-setting rules. The performance of standard intervention rules is analyzed, in reducing the output persistence which results from the interaction of staggered contracts and relative wage setting. In the case where the exogenous contract structure also includes wage indexation, the interaction of wage indexation and relative wage setting is destabilizing to asset markets and may indeed be destabilizing to output markets. Optimal monetary policy and wage indexation rules are derived under alternative union real wage-employment objectives.
Issue Date:1988
Description:198 p.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1988.
Other Identifier(s):(UMI)AAI8823239
Date Available in IDEALS:2014-12-16
Date Deposited:1988

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