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Labor disruption costs and real wages cyclicality

Author

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

Abstract

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.

Suggested Citation

  • Cervini-Plá, María & Silva, José I. & López-Villavicencio, Antonia, 2012. "Labor disruption costs and real wages cyclicality," MPRA Paper 42366, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42366
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    References listed on IDEAS

    as
    1. Messina, Julian & Strozzi, Chiara & Turunen, Jarkko, 2009. "Real wages over the business cycle: OECD evidence from the time and frequency domains," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1183-1200, June.
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    5. 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.
    6. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    7. Russell Cooper & Jonathan Willis, 2009. "The Cost of Labor Adjustment: Inferences from the Gap," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 632-647, October.
    8. 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.).
    9. Fahr, Stephan & Abbritti, Mirko, 2011. "Macroeconomic implications of downward wage rigidities," Working Paper Series 1321, European Central Bank.
    10. 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.
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    More about this item

    Keywords

    Labor disruption costs; real wages; matching frictions; wage cyclicality;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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