Affordable Access

Publisher Website

The formation of wage expectations in the effort and quit decisions of workers

Authors
Journal
Economic Modelling
0264-9993
Publisher
Elsevier
Volume
42
Identifiers
DOI: 10.1016/j.econmod.2014.07.002
Keywords
  • Wage Expectations
  • Imperfect Information
Disciplines
  • Economics

Abstract

Abstract This study develops models in which workers form expectations of average wages in choosing levels of effort and on-the-job search. It is assumed that information on lagged average wages is available at a low fixed cost, whilst acquiring other information requires an additional variable cost. Under reasonable conditions, workers' expectations are at least partly adaptive, and may be a mixture of rational and adaptive expectations. Microeconomic parameters determine the degree to which expectations are adaptive and the weights placed on various lags of wages. As a result of partly adaptive expectations, nominal demand shocks may have real effects.

There are no comments yet on this publication. Be the first to share your thoughts.