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Business cycles and wage rigidity

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  • Bartolucci, Cristian

Abstract

In this paper, we analyze the impact of downward wage rigidity on the labor market dynamics. We shows that imposing downward wage rigidity in a matching model with cyclical fluctuations in productivity, endogenous match-destruction, and on-the-job search, quits are procyclical and layoffs countercyclical. Using the European Community Household Panel (ECHP), we provide evidence that downward wage rigidity is empirically relevant in ten European countries. Finally, we show that layoffs are countercyclical and quits are procyclical, as predicted by the model.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 4 ()
Pages: 568-583

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Handle: RePEc:eee:labeco:v:19:y:2012:i:4:p:568-583

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Downward wage rigidity; Business cycles; Wage renegotiation;

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