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The cyclicality of the user cost of labor with search and matching

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  • Marianna Kudlyak

Abstract

The user cost of labor captures the hiring wage and the expected effect of the economic conditions at the time of hiring on future wages. In search and matching models, I show that it is the user cost and not the wage that is weighted against the worker's marginal product at the time of hiring; so, the user cost is the allocational variable. I construct its measure in the data and estimate that it is more procyclical than average wages or wages of newly hired workers. I show that the textbook search and matching model cannot simultaneously generate the empirical elasticities of the vacancy-unemployment ratio and of the user cost of labor, irrespectively of the surplus division rule.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 09-12.

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Date of creation: 2011
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Handle: RePEc:fip:fedrwp:09-12

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Related research

Keywords: Business cycles ; Labor market;

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Cited by:
  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.
  2. Leena Rudanko, 2005. "Labor Market Dynamics under Long Term Wage Contracting," 2005 Meeting Papers 876, Society for Economic Dynamics.
  3. Sophocles Mavroeidis & James Malcomson, 2011. "Nash Bargaining, Credible Bargaining and Efficiency wages in a matching model for the US," 2011 Meeting Papers 776, Society for Economic Dynamics.
  4. Kfir Eliaz & Rani Spiegler, 2013. "Reference-Dependence and Labor-Market Fluctuations," NBER Working Papers 19085, National Bureau of Economic Research, Inc.
  5. Martins, Pedro S. & Solon, Gary & Thomas, Jonathan P., 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," IZA Discussion Papers 4757, Institute for the Study of Labor (IZA).
  6. Marianna Kudlyak, 2012. "Housing services price inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 185-207.

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