A model of the wage curve

This paper uses a simple dynamic efficiency wage model of Phelps (1994) and Phelps and Hoon (1992) to explain the ‘wage curveʹ 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.