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Searching for Wages in an Estimated Labor Matching Model

Listed author(s):
  • Ryan Chahrour

    ()

    (Boston College)

  • Sanjay K. Chugh

    ()

    (Ohio State University)

  • Tristan Potter

    ()

    (Drexel University)

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.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 867.

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Date of creation: 17 Dec 2014
Date of revision: 20 Dec 2016
Handle: RePEc:boc:bocoec:867
Note: Previously circulated as "Wages and Wedges in an Estimated Labor Search Model"
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Web page: http://fmwww.bc.edu/EC/
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