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How Sticky Wages in Existing Jobs can affect Hiring

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  • Yongsung Chang

    (University of Rochester / Yonsei Univ.)

  • Sun-Bin Kim

    (Yonsei University)

  • Mark Bils

    (U. of Rochester)

Abstract

We consider a matching model of employment with wages that are flexible for new hires, but sticky within matches. We depart from standard treatments of sticky wages by allowing worker effort to respond to the wage being too high or low, rendering the effective wage (wage divided by output) more flexible. Shimer (2004), Pissarides (2009), and others have illustrated that employment in the Mortensen-Pissarides model does not depend on the degree of wage flexibility in existing matches. But this is not true in our model. If wages of matched workers are stuck too high in a recession, then firms will require they provide more effort. In turn, this lowers the value of additional labor, reducing new hiring.

Suggested Citation

  • Yongsung Chang & Sun-Bin Kim & Mark Bils, 2013. "How Sticky Wages in Existing Jobs can affect Hiring," 2013 Meeting Papers 1162, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:1162
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How Sticky Wages In Existing Jobs Can Affect Hiring
      by Christian Zimmermann in NEP-DGE blog on 2019-11-27 18:53:46

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    3. Bauer, Anja & Lochner, Benjamin, 2020. "History dependence in wages and cyclical selection: Evidence from Germany," Labour Economics, Elsevier, vol. 67(C).
    4. Jeffrey Clemens & Lisa B. Kahn & Jonathan Meer, 2018. "The Minimum Wage, Fringe Benefits, and Worker Welfare," NBER Working Papers 24635, National Bureau of Economic Research, Inc.
    5. Mikael Carlsson & Andreas Westermark, 2022. "Endogenous Separations, Wage Rigidities, and Unemployment Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 332-354, January.
    6. Joris Tielens, 2019. "Pipeline Pressures and Sectoral Inflation Dynamics," 2019 Meeting Papers 856, Society for Economic Dynamics.
    7. Fernando Martins & Pedro Portugal, 2014. "Wage adjustments during a severe economic downturn," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    8. Jonathon Hazell & Bledi Taska, 2020. "Downward Rigidity in the Wage for New Hires," Discussion Papers 2028, Centre for Macroeconomics (CFM).
    9. Andrew Snell & Heiko Stuber & Jonathan Thomas, 2018. "Downward Real Wage Rigidity and Equal Treatment Wage Contracts: Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 265-284, October.
    10. Bordo, Michael & Erceg, Christopher & Levin, Andrew & Michaels, Ryan, 2017. "Policy credibility and alternative approaches to disinflation," Research in Economics, Elsevier, vol. 71(3), pages 422-440.
    11. Jung, Euiyoung, 2023. "Wage rigidity and destabilizing spirals," Journal of Macroeconomics, Elsevier, vol. 77(C).
    12. Lenno Uuskula, 2015. "Firm turnover and inflation dynamics," Bank of Estonia Working Papers wp2015-01, Bank of Estonia, revised 03 Feb 2015.
    13. Lewis, Vivien & Villa, Stefania & Wolters, Maik H., 2019. "Labor productivity, effort and the euro area business cycle," Discussion Papers 44/2019, Deutsche Bundesbank.
    14. Guimaraes, Paulo & Martins, Fernando & Portugal, Pedro, 2017. "Upward Nominal Wage Rigidity," IZA Discussion Papers 10510, Institute of Labor Economics (IZA).
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    More about this item

    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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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