Implicit contracts and the cyclicality of the skill-premium

Pourpourides, Panayiotis ORCID: https://orcid.org/0000-0002-2986-4094 2011. Implicit contracts and the cyclicality of the skill-premium. Journal of Economic Dynamics and Control 35 (6) , pp. 963-979. 10.1016/j.jedc.2010.11.009

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Abstract

To examine the cyclical behavior of the skill-premium, this paper introduces implicit labor contracts in a DSGE model where production is characterized by capital-skill complementarity and the utilization of capital is endogenous. It is shown that this model can reproduce the observed cyclical patterns of wages and the skill-premium. The feature of capital-skill complementarity coupled with variable capital utilization rates does not come at odds with the acyclical behavior of the skill-premium. The paper argues that the skill-complementarity of capital is not a quantitatively significant factor at high frequencies. The key aspects are the contracts and the capital utilization margin.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > HG Finance
Uncontrolled Keywords:	implicit contracts; wages; skill-premium; business cycles; capital-skill complementarity
Publisher:	Elsevier
ISSN:	0165-1889
Last Modified:	18 Oct 2022 14:28
URI:	https://orca.cardiff.ac.uk/id/eprint/17618

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