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Labor disruption costs and real wages cyclicality

  • Cervini-Plá, María
  • Silva, José I.
  • López-Villavicencio, Antonia

In this paper, we propose a matching and search model with adjustment costs in the form of labor disruption charges that can generate counter-cyclical real wages. Empirically, we use a measure of wage cyclicality based on the generalized impulse response function of real wages to a shock in a cycle measure. We provide evidence that wages in the United States are counter-cyclical during the first few quarters. The calibration and simulated results of the model match remarkably well the counter-cyclicality obtained from our empirical model.

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File URL: http://mpra.ub.uni-muenchen.de/42366/1/MPRA_paper_42366.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42366.

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Date of creation: 29 Oct 2012
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Handle: RePEc:pra:mprapa:42366
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  1. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  2. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  3. Fahr Staphen & Abbritti Mirko, 2011. "Macroeconomic implications of downward wage rigidities," wp.comunite 0088, Department of Communication, University of Teramo.
  4. Julián Messina & Chiara Strozzi & Jarkko Turunen, 2008. "Real Wages over the Business Cycle: OECD Evidence from the Time and Frequency Domains," Center for Economic Research (RECent) 028, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  5. Chirinko, Robert S, 1980. "The Real Wage Rate over the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 459-61, August.
  6. Henry, Brian & Karanassou, Marika & Snower, Dennis J, 2000. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.
  7. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
  8. Russell Cooper & Jonathan Willis, 2002. "The cost of labor adjustment : inferences from the gap," Research Working Paper RWP 02-11, Federal Reserve Bank of Kansas City.
  9. Charles A. Fleischman, 1999. "The causes of business cycles and the cyclicality of real wages," Finance and Economics Discussion Series 1999-53, Board of Governors of the Federal Reserve System (U.S.).
  10. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  11. Sumner, Scott & Silver, Stephen, 1989. "Real Wages, Employment, and the Phillips Curve," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 706-20, June.
  12. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  13. Spencer, David E, 1998. "The Relative Stickiness of Wages and Prices," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 120-37, January.
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