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Wage rigidity and job creation

  • Christian Haefke
  • Marcus Sonntag
  • Thijs van Rens

Recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations. We use worker-level data from the CPS to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions. The wage of new hires, unlike the aggregate wage, is volatile and responds almost one-to-one to changes in labor productivity. We conclude that there is little evidence for wage stickiness in the data. We also show, however, that a little wage rigidity goes a long way in amplifying the response of job creation to productivity shocks.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1047.

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Date of creation: Apr 2007
Date of revision: Apr 2012
Handle: RePEc:upf:upfgen:1047
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