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The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?

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Author Info
Christopher A. Pissarides

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Abstract

I study the cyclical behavior of an equilibrium search model with endogenous job creationand destruction, with focus on the model's failure to match the observed cyclical volatility ofunemployment. Job creation in the model is influenced by wages in new matches. Isummarize microeconometric evidence on wages in new matches and show that the keymodel elasticities are consistent with the evidence. Therefore explanations of theunemployment volatility puzzle have to preserve the cyclical volatility of wages. I discusssome extensions of the model that can increase cyclical unemployment volatility throughmechanisms other than wage stickiness.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0839.

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Date of creation: Nov 2007
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Handle: RePEc:cep:cepdps:dp0839

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Related research
Keywords: wages; unemployment; wage stickiness; job creation;

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Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Leena Rudanko, 2008. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," Boston University - Department of Economics - Working Papers Series wp2008-009, Boston University - Department of Economics. [Downloadable!]
  2. Régis Barnichon, 2007. "The Shimer Puzzle and the Correct Identification of Productivity Shocks," CEP Discussion Papers dp0823, Centre for Economic Performance, LSE. [Downloadable!]
  3. Tutino, Antonella, 2008. "Processing savings and work decisions through Shannon's channels," MPRA Paper 16746, University Library of Munich, Germany, revised 26 Jul 2009. [Downloadable!]
  4. Alain Béraud, 2008. "La Place De La Notion De Chômage Involontaire Dans La Théorie Keynésienne De L’Emploi," THEMA Working Papers 2008-16, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
    Other versions:
  5. Christoffel, Kai & Costain, James & de Walque, Gregory & Kuester, Keith & Linzert, Tobias & Millard, Stephen & Pierrard, Olivier, 2009. "Inflation dynamics with labour market matching: assessing alternative specifications," Bank of England working papers 375, Bank of England. [Downloadable!]
    Other versions:
  6. Leena Rudanko, 2008. "Labor Market Dynamics under Long Term Wage Contracting," Boston University - Department of Economics - Working Papers Series wp2008-003, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  7. Monique Ebell, 2008. "Resurrecting the Participation Margin," CEP Discussion Papers dp0873, Centre for Economic Performance, LSE. [Downloadable!]
  8. Burcu Eyigungor, 2008. "Specific capital and vintage effects on the dynamics of unemployment and vacancies," Working Papers 08-6, Federal Reserve Bank of Philadelphia. [Downloadable!]
  9. De Walque, Gregory & Pierrard, Olivier & Sneessens, Henri & Wouters, Raf, 2009. "Sequential Bargaining in a New-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation," IZA Discussion Papers 4059, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  10. Michael W. L. Elsby & Ryan Michaels, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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