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

Mark Gertler, Christopher Huckfeldt and Antonella Trigari ()

No 1634, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: Macroeconomic models often incorporate some form of wage stickiness to help account for employment fluctuations. However, a recent literature calls in to question this approach, citing evidence of new hire wage cyclicality from panel data studies as evidence for contractual wage flexibility for new hires, which is the relevant margin for employment volatility. We analyze data from the SIPP and find that the wages for new hires coming from unemployment are no more cyclical than those of existing workers, suggesting wages are sticky at the relevant margin. The new hire wage cyclicality found in earlier studies instead appears to reflect cyclical average wage gains of workers making job-to-job transitions, which we interpret as evidence of procyclical match quality for new hires from employment. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and variable match quality, and show that it can account for both the panel data evidence and aggregate labor market regularities. An additional implication of the model is that a sullying effect of recessions emerges, along the lines originally suggested by Barlevy (2002).

Pages: 72 pages
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (52)

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Related works:
Journal Article: Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires (2020)
Working Paper: Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires (2016)
Working Paper: Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires (2016)
Working Paper: Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires (2015)
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