Business Cycles, Wage Setting, and Asymmetric Information
AbstractThis paper explores wage-setting in the presence of asymmetric information. Firms know their own productivity, while workers only know the distribution of productivity in the economy. Although there is unemployment in equilibrium, the labor market is competitive in the sense of Moen (1997): firms commit to wage contracts in an effort to attract job applicants. The paper shows that an increase in the average level of productivity or an increase in the variance of productivity raises the equilibrium wage, while an increae in average productivity or a reduction in the variance reduces unemployment. It follows that if recessions are chararacterized by low average productivity and a high variance, the model can explain large (un)employment fluctuations associated with small changes in wages
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 37.
Date of creation: 2004
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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search; matching; economic fluctuations; unemployment; vacancies;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
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