TY  - RPRT
        AU  - Gaur, Meghana
AU  - Grigsby, John
AU  - Hazell, Jonathon
AU  - Ndiaye, Abdoulaye
        TI  - Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics?
        PY  - 2023/Sep/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 16481
        UR  - https://www.iza.org/publications/dp16481
        AB  - 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.
        KW  - incentive contracts
KW  - unemployment dynamics
KW  - wage rigidity
        ER  -