TY - JOUR
T1 - Dual labour markets and nominal rigidity
AU - Kleven, Henrik Jacobsen
AU - Kreiner, Claus Thustrup
AU - Dixon, Huw David
N1 - Funding Information:
We would like to thank Peter Birch Sørensen as well as two anonymous referees for very helpful comments and suggestions for improvements. The activities of EPRU (Economic Policy Research Unit) are financed through a grant from the Danish National Research Foundation. Huw Dixon’s research was funded by an ESRC Research Fellowship.
PY - 2002/10
Y1 - 2002/10
N2 - The conventional menu cost framework performs poorly with realistic labour supply elasticities: the menu costs required for price rigidity are very high and the welfare consequences of monetary disturbances are negligible. We show that the presence of dual labour markets greatly improves the performance of the framework both by reducing the minimum effective menu costs and by boosting the welfare consequences. In addition, the introduction of dual labour markets provides an explanation of procyclical productivity and the shrinking of wage differentials during booms, in line with stylized facts on business cycles.
AB - The conventional menu cost framework performs poorly with realistic labour supply elasticities: the menu costs required for price rigidity are very high and the welfare consequences of monetary disturbances are negligible. We show that the presence of dual labour markets greatly improves the performance of the framework both by reducing the minimum effective menu costs and by boosting the welfare consequences. In addition, the introduction of dual labour markets provides an explanation of procyclical productivity and the shrinking of wage differentials during booms, in line with stylized facts on business cycles.
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U2 - 10.1093/oep/54.4.561
DO - 10.1093/oep/54.4.561
M3 - Article
AN - SCOPUS:0036790076
SN - 0030-7653
VL - 54
SP - 561
EP - 583
JO - Oxford Economic Papers
JF - Oxford Economic Papers
IS - 4
ER -