Employment Effect of Sticky Wage When Effort Can Respond: Taylor-type Staggering Wage Contract

Abstract

Bils, Chang, and Kim(2017) show that when effrot can respond, the sticky wages of existing job can affect hiring, despite wages of new hires being flexible. We confirm this result in an alternative wage setting — Taylor type staggering contract. If wages of matched workers are stuck too high in a recession, firms will require more effort, lowering the value of additional labor and reducing new hiring.