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Disentangling employment and wage rigidity

Author

Listed:
  • Luigi Guiso
  • Luigi Pistaferri
  • Fabiano Schivardi

    () (Research Bank of Italy)

Abstract

We use matched employer-employees data for Italy to study the joint response of wages and employment to firm-level shocks. We construct a simple dynamic general equilibrium model of labor demand and supply that allows us to identify separately firing (or internal) and mobility (or external) adjustment costs. We show that the two type of costs cannot be discriminated empirically by looking at labor or wage adjustment separately. Mobility costs have distinctive implications on wage response to firm-level employment changes but they can only be identified with worker-level information on wages. We find that both types of costs are present, but the internal component accounts for a large share of total adjustment costs. Our results are consistent with a labor market where workers are fairly mobile within locations but scarcely mobile across them

Suggested Citation

  • Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2006. "Disentangling employment and wage rigidity," 2006 Meeting Papers 536, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:536
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    References listed on IDEAS

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    More about this item

    Keywords

    Adjustment costs; mobility costs; matched employer-employees data;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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