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Implicit contracts and the cyclicality of the skill-premium

Pourpourides, Panayiotis 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: 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: 04 Jun 2017 03:10
URI: http://orca.cf.ac.uk/id/eprint/17618

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