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How Sticky Wages In Existing Jobs Can Affect Hiring

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  • Mark Bils

    (University of Rochester)

  • Yongsung Chang

    (University of Rochester)

  • Sun-Bin Kim

    (Yonsei University)

Abstract

We consider a matching model of employment with flexible wages for new hires, but sticky wages within matches. Unlike most models of sticky wages, we allow effort to respond if wages are too high or too low. In the Mortensen-Pissarides model, employment is not affected by wage stickiness in existing matches. But it is in our model. If wages of matched workers are stuck too high, firms require more effort, lowering the value of additional labor and reducing hiring. We find that effort¡¯s response can greatly increase wage inertia.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Mark Bils & Yongsung Chang & Sun-Bin Kim, 2014. "How Sticky Wages In Existing Jobs Can Affect Hiring," RCER Working Papers 579, University of Rochester - Center for Economic Research (RCER).
    • Handle: RePEc:roc:rocher:579
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How Sticky Wages In Existing Jobs Can Affect Hiring
      by Christian Zimmermann in NEP-DGE blog on 2019-11-27 18:53:46

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    3. Bauer, Anja & Lochner, Benjamin, 2020. "History dependence in wages and cyclical selection: Evidence from Germany," Labour Economics, Elsevier, vol. 67(C).
    4. Fernando Martins & Pedro Portugal, 2014. "Wage adjustments during a severe economic downturn," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    5. Jung, Euiyoung, 2023. "Wage rigidity and destabilizing spirals," Journal of Macroeconomics, Elsevier, vol. 77(C).
    6. Guimaraes, Paulo & Martins, Fernando & Portugal, Pedro, 2017. "Upward Nominal Wage Rigidity," IZA Discussion Papers 10510, Institute of Labor Economics (IZA).
    7. Yicheng Wang, 2015. "Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks?," 2015 Meeting Papers 1189, Society for Economic Dynamics.
    8. Jeffrey Clemens & Lisa B. Kahn & Jonathan Meer, 2018. "The Minimum Wage, Fringe Benefits, and Worker Welfare," NBER Working Papers 24635, National Bureau of Economic Research, Inc.
    9. Mikael Carlsson & Andreas Westermark, 2022. "Endogenous Separations, Wage Rigidities, and Unemployment Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 332-354, January.
    10. Joris Tielens, 2019. "Pipeline Pressures and Sectoral Inflation Dynamics," 2019 Meeting Papers 856, Society for Economic Dynamics.
    11. Jonathon Hazell & Bledi Taska, 2020. "Downward Rigidity in the Wage for New Hires," Discussion Papers 2028, Centre for Macroeconomics (CFM).
    12. Andrew Snell & Heiko Stuber & Jonathan Thomas, 2018. "Downward Real Wage Rigidity and Equal Treatment Wage Contracts: Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 265-284, October.
    13. Bordo, Michael & Erceg, Christopher & Levin, Andrew & Michaels, Ryan, 2017. "Policy credibility and alternative approaches to disinflation," Research in Economics, Elsevier, vol. 71(3), pages 422-440.
    14. Lenno Uuskula, 2015. "Firm turnover and inflation dynamics," Bank of Estonia Working Papers wp2015-01, Bank of Estonia, revised 03 Feb 2015.
    15. Lewis, Vivien & Villa, Stefania & Wolters, Maik H., 2019. "Labor productivity, effort and the euro area business cycle," Discussion Papers 44/2019, Deutsche Bundesbank.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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