%0 Report
        %A Gaur, Meghana
%A Grigsby, John
%A Hazell, Jonathon
%A Ndiaye, Abdoulaye
        %T Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics?
        %D 2023
        %8 2023 Sep
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 16481
        %U https://www.iza.org/index.php/publications/dp16481
        %X We introduce dynamic incentive contracts into a model of unemployment dynamics and present three results. First, wage cyclicality from incentives does not dampen unemployment dynamics: the response of unemployment to shocks is first-order equivalent in an economy with flexible incentive pay and without bargaining, vis-a-vis an economy with rigid wages. Second, wage cyclicality from bargaining dampens unemployment dynamics through the standard mechanism. Third, our calibrated model suggests 46% of wage cyclicality in the data arises from incentives. A standard model without incentives calibrated to weakly procyclical wages, matches unemployment dynamics in our incentive pay model calibrated to strongly procyclical wages.
        %K incentive contracts
%K unemployment dynamics
%K wage rigidity