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Wage Rigidity and Job Creation

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Author Info
Christian Haefke
Marcus Sonntag
Thijs van Rens ()

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Abstract

Shimer (2005) and Hall (2005) have documented the failure of standard labor market search models to match business cycle fluctuations in employment and unemployment. They argue that it is likely that wages are not adjusted as regularly as suggested by the model, which would explain why employment is more volatile than the model predicts. We explore whether this explanation is consistent with the data. The main insight is that the relevant wage data for the search model are not aggregate wages, but wages of newly hired workers. Our results show that wages for those workers are much more volatile than aggregate wages and respond one-for-one to changes in labor productivity. Thus, we find no evidence for wage rigidity.

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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1047.

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Date of creation: Apr 2007
Date of revision: Jul 2007
Handle: RePEc:upf:upfgen:1047

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Wage Rigidity Search and Matching Model Business Cycle

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
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. Paul J. Devereux, 2001. "The Cyclicality of real wages within employer-employee matches," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 54(4), pages 835-850, July.
  2. John Kennan, 2006. "Private Information, Wage Bargaining and Employment Fluctuations," NBER Working Papers 11967, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Paul J. Devereux & Robert A. Hart, 2006. "Real wage cyclicality of job stayers, within-company job movers, and between-company job movers," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 60(1), pages 105-119, October.
    Other versions:
  4. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August. [Downloadable!] (restricted)
  5. Bjoern Bruegemann & Giuseppe Moscarini, 2007. "Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor Markets," NBER Working Papers 13030, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!] (restricted)
  7. Christian Belzil, 2006. "Testing the Specification of the Mincer Wage Equation," Working Papers 0608, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
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  8. Mark Gertler & Antonella Trigari, 2006. "Unemployment fluctuations with staggered Nash wage bargaining," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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  9. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March. [Downloadable!] (restricted)
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  10. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August. [Downloadable!] (restricted)
  11. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
    Other versions:
  12. Peter Gottschalk, 2004. "Downward Nominal Wage Flexibility: Real or Measurement Error?," Boston College Working Papers in Economics 611, Boston College Department of Economics. [Downloadable!]
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  13. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Michael Reiter, 2006. "Embodied Technical Change And The Fluctuations Of Wages and Unemployment," Economics Working Papers 980, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  15. Helge Braun, 2006. "(Un)Employment Dynamics: The Case of Monetary Policy Shocks," 2006 Meeting Papers 87, Society for Economic Dynamics. [Downloadable!]
  16. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 585-614, July. [Downloadable!]
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  17. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05. [Downloadable!] (restricted)
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  18. Jordi Galí & Luca Gambetti, 2006. "On the Sources of the Great Moderation," Economics Working Papers 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007. [Downloadable!]
  19. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
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  20. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March. [Downloadable!] (restricted)
  21. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," Economics Working Papers 872, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2006. [Downloadable!]
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  22. Barlevy, Gadi, 2001. "Why Are the Wages of Job Changers So Procyclical?," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 837-78, October. [Downloadable!] (restricted)
  23. Olivier Blanchard & Jordi Gali, 2006. "A new Keynesian model with unemployment," Research series 200610-4, National Bank of Belgium. [Downloadable!]
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  24. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September. [Downloadable!] (restricted)
  25. Boldrin, Michael & Horvath, Michael, 1995. "Labor Contracts and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 972-1004, October. [Downloadable!] (restricted)
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  26. Katharine G. Abraham & James R. Spletzer & Jay C. Stewart, 1999. "Why Do Different Wage Series Tell Different Stories?," American Economic Review, American Economic Association, vol. 89(2), pages 34-39, May. [Downloadable!] (restricted)
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. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2007. "Comparative Advantage in Cyclical Unemployment," NBER Working Papers 13231, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Jonathan Thomas & Andy Snell, . " Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting," CDMA Conference Paper Series 0708, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  3. 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!]
  4. 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)
  5. Michael Reiter, 2006. "Embodied Technical Change And The Fluctuations Of Wages and Unemployment," Economics Working Papers 980, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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This page was last updated on 2008-8-1.

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