The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?

Christopher Pissarides

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: I study the cyclical behavior of an equilibrium search model with endogenous job creation and destruction, with focus on the model's failure to match the observed cyclical volatility of unemployment. Job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence on wages in new matches and show that the key model elasticities are consistent with the evidence. Therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss some extensions of the model that can increase cyclical unemployment volatility through mechanisms other than wage stickiness.

Keywords: wages; unemployment; wage stickiness; job creation (search for similar items in EconPapers)
JEL-codes: E3 J63 J64 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-dge, nep-lab, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

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Related works:
Journal Article: The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer? (2009)
Working Paper: The unemployment volatility puzzle: is wage stickiness the answer? (2007)
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