Jonathon Hazell

Thematic seminars
Macro and labor market seminar

Jonathon Hazell

London School of Economics
Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics?

MEGA Salle Carine Nourry

MEGA - Salle Carine Nourry

Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
13080 Aix-en-Provence

Friday, January 12 2024| 12:30pm to 1:30pm

Marco Fongoni: marco.fongoni[at]
Francesco Gaudio: francesco-saverio.gaudio[at]


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.