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Searching for Wages in an Estimated Labor Matching Model

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Listed:
  • Ryan Chahrour

    () (Boston College)

  • Sanjay K. Chugh

    () (Ohio State University)

  • Tristan Potter

    () (Drexel University)

Abstract

We estimate a real business cycle economy with search frictions in the labor market in which the latent wage follows a non-structural ARMA process. The estimated model does an excellent job matching a broad set of quantity data and wage indicators. Under the estimated process, wages respond immediately to shocks but converge slowly to their long-run levels, inducing substantial variation in labor's share of surplus. These results are not consistent with either a rigid real wage or flexible Nash bargaining. Despite inducing a strong endogenous response of wages, neutral shocks to productivity account for the vast majority of aggregate fluctuations in the economy, including labor market variables.

Suggested Citation

  • Ryan Chahrour & Sanjay K. Chugh & Tristan Potter, 2014. "Searching for Wages in an Estimated Labor Matching Model," Boston College Working Papers in Economics 867, Boston College Department of Economics, revised 20 Dec 2016.
  • Handle: RePEc:boc:bocoec:867
    Note: Previously circulated as "Wages and Wedges in an Estimated Labor Search Model"
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Search and Matching; Wages; Unemployment; Business Cycles;

    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

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