The Macroeconomics of Wage Rigidity and Job Separations

Andrés Blanco, Andrés Drenik, Christian Moser and Emilio Zaratiegui

No 12671, CESifo Working Paper Series from CESifo

Abstract: We study the macroeconomic implications of wage-rigidity-induced job separations in an equilibrium labor market model with four features: worker productivity shocks, staggered wage contracts, search frictions, and two-sided lack of commitment. Endogenous quits and layoffs are unilaterally initiated whenever a worker’s wage-to-productivity ratio or markdown moves outside an inaction region. We derive sufficient statistics for the labor market response to inflationary shocks based on the distribution of markdowns, which we show how to identify using microdata on wage changes and worker flows between jobs. Using an extension of the model for quantitative analysis, we find that aggregate shocks generate significant cyclicality in endogenous job separations, including 62 percent of the empirical quit volatility and 94 percent of the empirical layoff volatility.

Keywords: search frictions; limited commitment; inaction; quits; layoffs; sufficient statistics (search for similar items in EconPapers)
JEL-codes: E31 E52 J64 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-dge
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