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The cyclicality of the user cost of labor with search and matching

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  • Marianna Kudlyak

Abstract

The user cost of labor captures the hiring wage and the expected effect of the economic conditions at the time of hiring on future wages. In search and matching models, I show that it is the user cost and not the wage that is weighted against the worker's marginal product at the time of hiring; so, the user cost is the allocational variable. I construct its measure in the data and estimate that it is more procyclical than average wages or wages of newly hired workers. I show that the textbook search and matching model cannot simultaneously generate the empirical elasticities of the vacancy-unemployment ratio and of the user cost of labor, irrespectively of the surplus division rule.

Suggested Citation

  • Marianna Kudlyak, 2011. "The cyclicality of the user cost of labor with search and matching," Working Paper 09-12, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:09-12
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    Citations

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    Cited by:

    1. Leena Rudanko, 2011. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 101(6), pages 2823-2843, October.
    2. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.
    3. Kfir Eliaz & Ran Spiegler, 2014. "Reference Dependence and Labor Market Fluctuations," NBER Macroeconomics Annual, University of Chicago Press, vol. 28(1), pages 159-200.
    4. Rudanko, Leena, 2009. "Labor market dynamics under long-term wage contracting," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 170-183, March.
    5. Marianna Kudlyak, 2012. "Housing services price inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 185-207.
    6. Michael W. Elsby & Donggyun Shin & Gary Solon, 2013. "Wage Adjustment in the Great Recession," NBER Working Papers 19478, National Bureau of Economic Research, Inc.
    7. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers 15767, National Bureau of Economic Research, Inc.
    8. Herz, Benedikt & van Rens, Thijs, 2015. "Accounting for Mismatch Employment," The Warwick Economics Research Paper Series (TWERPS) 1061, University of Warwick, Department of Economics.
    9. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.
    10. Herz, Benedikt & van Rens, Thijs, 2015. "Accounting for Mismatch Employment," Economic Research Papers 270222, University of Warwick - Department of Economics.

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    Keywords

    Business cycles ; Labor market;

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