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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
DOI: 10.1016/j.labeco.2012.05.004
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  3. Holden, Steinar & Wulfsberg, Fredrik, 2005. "Downward Nominal Wage Rigidity in the OECD," Memorandum 10/2005, Oslo University, Department of Economics.
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  18. Agell, Jonas & Lundborg, Per, 1999. "Survey evidence on wage rigidity and unemployment: Sweden in the 1990s," Working Paper Series 1999:2, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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  23. Holden, Steinar, 1998. " Wage Drift and the Relevance of Centralised Wage Setting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(4), pages 711-31, December.
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  27. Holden, Steinar & Wulfsberg, Fredrik, 2004. "Downward Nominal Wage Rigidity in Europe," Memorandum 08/2004, Oslo University, Department of Economics.
  28. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
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