This paper shows how heterogeneity in wage setting and a link between nominal wage flexibility and goods-market competition arise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas...

In this article, John Duca discusses how and why compensation has become more market sensitive in the United States. Specifically, he illustrates how fiercer product market competition can theoretically reduce the prevalence of nominal wage contracts and of indexation in such contracts, while...