A model of the wage curve

Abstract

This paper uses a simple dynamic efficiency wage model of Phelps, 1994, Phelps and Hoon, 1992to explain the `wage curve' of Blanchflower and Oswald (1994). We derive a theoretical elasticity of wages with respect to employment which depends on only one parameter. This invariance may go part of the way to explaining why Blanchflower and Oswald found wage curve estimates that were so similar across countries.