Wage Adjustment in Efficient Long-Term Employment Relationships

Thu, 01 Jan 2026 00:00:00 +0000

This paper develops a tractable theoretical model of wage dynamics in long-term employment relationships, situated between two polar extremes in the existing literature: continual Nash renegotiation (Mortensen and Pissarides 1994) and wage adjustment only when participation constraints bind (MacLeod and Malcomson 1993). The central motivation is that neither polar extreme matches well-documented empirical facts about wage adjustment — wages are adjusted neither continuously nor as rarely as participation constraints alone would imply.

Gary Solon | Macro Paper Warehouse

Wage Adjustment in Efficient Long-Term Employment Relationships