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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.

Suggested Citation

  • Bartolucci, Cristian, 2012. "Business cycles and wage rigidity," Labour Economics, Elsevier, vol. 19(4), pages 568-583.
  • 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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    References listed on IDEAS

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    Cited by:

    1. Miroslava Kostova Karaboytcheva & Carolina Silva Cassorla, 2015. "The shadow economy: a relevant factor for investment decisions in selected European Union countries," Financial Theory and Practice, Institute of Public Finance, vol. 39(3), pages 305-323.
    2. repec:eee:labeco:v:48:y:2017:i:c:p:1-22 is not listed on IDEAS

    More about this item


    Downward wage rigidity; Business cycles; Wage renegotiation;

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles


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