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On the Dynamics of Unemployment and Wage Distributions

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  • Jean‐Marc Robin

Abstract

Postel-Vinay and Robin’s (2002) sequential auction model is extended to allow for aggregate productivity shocks. Workers exhibit permanent differences in ability while firms are identical. Negative aggregate productivity shocks induce job destruction by driving the surplus of matches with low ability workers to negative values. Endogenous job destruction coupled with worker heterogeneity thus provides a mechanism for amplifying productivity shocks that offers an original solution to the unemployment volatility puzzle (Shimer (2005)). Moreover, positive or negative shocks may lead employers and employees to renegotiate low wages up and high wages down when agents’ individual surpluses become negative. The model delivers rich business cycle dynamics of wage distributions and explains why both low wages and high wages are more procyclical than wages in the middle of the distribution.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 79 (2011)
Issue (Month): 5 (09)
Pages: 1327-1355

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Handle: RePEc:ecm:emetrp:v:79:y:2011:i:5:p:1327-1355

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  1. Postel-Vinay, Fabien & Turon, Hélène, 2005. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," IZA Discussion Papers 1637, Institute for the Study of Labor (IZA).
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Cited by:
  1. Aretz, Bodo & Gürtzgen, Nicole, 2012. "What Explains the Decline in Wage Mobility in the German Low-Wage Sector?," IZA Discussion Papers 7046, Institute for the Study of Labor (IZA).
  2. Aretz, Bodo, 2013. "Gender Differences in German Wage Mobility," IZA Discussion Papers 7158, Institute for the Study of Labor (IZA).
  3. Carrillo-Tudela, Carlos & Visschers, Ludo, 2013. "Unemployment and endogenous reallocation over the business cycle," ISER Working Paper Series 2013-01, Institute for Social and Economic Research.
  4. Luis Garicano & Claire LeLarge & John Van Reenen, 2013. "Firm Size Distortions and the Productivity Distribution: Evidence from France," NBER Working Papers 18841, National Bureau of Economic Research, Inc.
  5. Aretz, Bodo, 2013. "Gender Differences in German Wage Mobility," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80003, Verein für Socialpolitik / German Economic Association.
  6. Laetitia Comminges & Arnak Dalalyan, . "Minimax Testing of a Composite null Hypothesis Defined via a Quadratic Functional in the Model of regression," Working Papers 2012-19, Centre de Recherche en Economie et Statistique.
  7. Jeremy Lise & Jean-Marc Robin, 2013. "The Macro-dynamics of Sorting between Workers and Firms," Working Papers 2013-012, Human Capital and Economic Opportunity Working Group.
  8. Simon Beck & Thierry Kamionka, 2012. "Who Benefits from Growth ?," Working Papers 2012-18, Centre de Recherche en Economie et Statistique.
  9. Elliot Anenberg & Patrick Bayer, 2013. "Endogenous sources of volatility in housing markets: the joint buyer-seller problem," Finance and Economics Discussion Series 2013-60, Board of Governors of the Federal Reserve System (U.S.).

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