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Heterogeneity in Staggered Wage Bargaining and Unemployment Volatility Puzzle

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  • Engin Kara
  • Yongmin Park

Abstract

It has been noted that the search and matching model cannot account for the observed unemployment fluctuations. Gertler and Trigari (2009) show this weakness of the model disappears when wage stickiness is introduced to the model. Pissarides (2009) disagrees with this modification, arguing that new hires’ wages are not sticky. We argue that there is heterogeneity in wage setting: while some wages are sticky, the others are not. We generalise the model to account for this heterogeneity. We find that the new model with even only a small fraction of sticky wage contracts comes closer to matching the data.

Suggested Citation

  • Engin Kara & Yongmin Park, 2017. "Heterogeneity in Staggered Wage Bargaining and Unemployment Volatility Puzzle," CESifo Working Paper Series 6536, CESifo.
    • Handle: RePEc:ces:ceswps:_6536
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    References listed on IDEAS

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    More about this item

    Keywords

    search and matching; heterogeneity in staggered wage bargaining; unemployment volatility puzzle;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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