Using a standard incomplete-markets model, we compute the welfare of two socioeconomic systems: laissez-faire and egalitarianism. The egalitarian system (in which after-tax wages are compressed) provides insurance against income risks but at the cost of inefficiency: it undermines productive...

We examine the response of a sticky-wage economy to various real and nominal shocks. In addition to variations in hours, we allow for an endogenous response in worker effort per hour. Despite wages being predetermined, the labor market clears through the effort margin. We find that the ability...