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Business cycles and wage rigidity

  • Bartolucci, Cristian

In this paper, we analyze the impact of downward wage rigidity on the labor market dynamics. We shows that imposing downward wage rigidity in a matching model with cyclical fluctuations in productivity, endogenous match-destruction, and on-the-job search, quits are procyclical and layoffs countercyclical. Using the European Community Household Panel (ECHP), we provide evidence that downward wage rigidity is empirically relevant in ten European countries. Finally, we show that layoffs are countercyclical and quits are procyclical, as predicted by the model.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 4 ()
Pages: 568-583

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Handle: RePEc:eee:labeco:v:19:y:2012:i:4:p:568-583
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  25. James Ted McDonald & Christopher Worswick, 1999. "Wages, Implicit Contracts, and the Business Cycle: Evidence from Canadian Micro Data," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 884-913, August.
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