Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market
I consider three views of the labor market. In the first, wages are flexible and employment follows the principle of bilateral efficiency. Workers never lose their jobs because of sticky wages. In the second view, wages are sticky and inefficient layoffs do occur. In the third, wages are also sticky, but employment governance is efficient. I show that the behavior of flows in the labor market strongly favors the third view. In the modern U.S. economy, recessions do not begin with a burst of layoffs. Unemployment rises because jobs are hard to find, not because an unusual number of people are thrown into unemployment.
|Date of creation:||Mar 2005|
|Date of revision:|
|Publication status:||published as Hall, Robert E. “Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market.” Review of Economics and Statistics 87, 3 (August 2005): 397-407.|
|Note:||EFG LS PR|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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