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Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires

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  • Christopher Huckfeldt

    (Cornell University)

  • Antonella Trigari

    (UniversitàBocconi)

  • Mark Gertler

    (New York University)

Abstract

Recent papers interpret micro-level findings of greater cyclicality in the wages of job-changers as evidence for flexible wages of new hires, thus concluding that wage rigidity is not an empirically plausible mechanism for resolving the unemployment volatility puzzle. We analyze data from the Survey of Income and Program Participation (SIPP) to argue that greater cyclicality of wages for job changers reflects cyclicality in the composition of match quality across new hires. After introducing controls for the cyclicality of job-to-job flows, we find no evidence for greater wage flexibility among new hires. In light of our empirical findings, we study an equilibrium model of unemployment with staggered Nash bargaining, heterogeneous match quality, and on-the-job search. Workers in bad matches vary their search intensity according to the probability of finding a better match, generating cyclicality in the contribution of bad-to-good transitions to total job-to-job flows. Using simulated data from our model, we compute measures of new hire wage cyclicality analogous to those found in the literature and show that cyclical match composition in our model generates spurious evidence of new hire wage flexibility of comparable in magnitude to what we estimate from the SIPP. The model is also successful in accounting for the cyclicality of job creation and the dynamics of aggregate unemployment.

Suggested Citation

  • Christopher Huckfeldt & Antonella Trigari & Mark Gertler, 2015. "Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires," 2015 Meeting Papers 438, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:438
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    References listed on IDEAS

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    Cited by:

    1. Merkl, Christian & Stüber, Heiko, 2016. "Wage cyclicalities and labor market dynamics at the establishment level: Theory and evidence," FAU Discussion Papers in Economics 12/2016, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    2. Christopher Huckfeldt, 2018. "Understanding the Scarring Effect of Recessions," 2018 Meeting Papers 1207, Society for Economic Dynamics.
    3. repec:oup:jeurec:v:16:y:2018:i:5:p:1281-1349. is not listed on IDEAS
    4. Daniel Schaefer & Carl Singleton, 2017. "Real Wages and Hours in the Great Recession: Evidence from Firms and their Entry-Level Jobs," CESifo Working Paper Series 6766, CESifo Group Munich.
    5. Grace Weishi Gu & Eswar Prasad, 2018. "New Evidence on Cyclical Variation in Labor Costs in the U.S," NBER Working Papers 24266, National Bureau of Economic Research, Inc.
    6. Carlsson, Mikael & Westermark, Andreas, 2016. "Endogenous Separations, Wage Rigidities and Employment Volatility," Working Paper Series 326, Sveriges Riksbank (Central Bank of Sweden).
    7. Martin Wolf, 1906. "Pecuniary Externalities in Economies with Downward Wage Rigidity," Vienna Economics Papers 1905, University of Vienna, Department of Economics.
    8. Hergovich, Philipp & Merz, Monika, 2018. "The Price of Capital, Factor Substitutability, and Corporate Profits," CEPR Discussion Papers 13168, C.E.P.R. Discussion Papers.
    9. Philipp Hergovich & Monika Merz, 2018. "The Price of Capital, Factor Substitutability and Corporate Profits," Vienna Economics Papers 1801, University of Vienna, Department of Economics.
    10. James M. Malcomson & Sophocles Mavroeidis, 2017. "Bargaining and Wage Rigidity in a Matching Model for the US," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 997-1017, December.
    11. Faccini, Renato & Melosi, Leonardo, 2019. "Bad Jobs and Low Inflation," CEPR Discussion Papers 13628, C.E.P.R. Discussion Papers.
    12. Jäger, Simon & Schoefer, Benjamin & Young, Samuel & Zweimüller, Josef, 2018. "Wages and the Value of Nonemployment," IZA Discussion Papers 11996, Institute of Labor Economics (IZA).
    13. Joyce Hahn & Henry Hyatt & Hubert Janicki, 2018. "Job Ladders and Growth in Earnings, Hours, and Wages," 2018 Meeting Papers 908, Society for Economic Dynamics.
    14. Isaac Baley & Ana Figueiredo & Robert Ulbricht, 2018. "Mismatch Cycles," 2018 Meeting Papers 1098, Society for Economic Dynamics.
    15. Gottfries, Axel & Teulings, Coen N, 2017. "Wage posting, nominal rigidity, and cyclical inefficiencies," CEPR Discussion Papers 12316, C.E.P.R. Discussion Papers.
    16. Lydon, Reamonn & Lozej, Matija, 2018. "Flexibility of new hires’ earnings in Ireland," Labour Economics, Elsevier, vol. 53(C), pages 112-127.
    17. Kevin x.d. Huang & Munechika Katayama & Mototsugu Shintani & Takayuki Tsuruga, 2017. "Sticky-Wage Models and Knowledge Capital: A Note," Vanderbilt University Department of Economics Working Papers 17-00006, Vanderbilt University Department of Economics.
    18. Axel Gottfries, 2018. "Partial commitment in models of on-the-job search with an application to minimum wage spillovers," 2018 Meeting Papers 567, Society for Economic Dynamics.
    19. Hie Joo Ahn & Ling Shao, 2017. "Precautionary On-the-Job Search over the Business Cycle," Finance and Economics Discussion Series 2017-025, Board of Governors of the Federal Reserve System (US).
    20. Martin, Chris & Wang, Bingsong, 2018. "Unemployment Volatility in a Behavioural Search Model," The Warwick Economics Research Paper Series (TWERPS) 1179, University of Warwick, Department of Economics.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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