Does Wage Persistence Matter for Employment Fluctuations? Evidence from Displaced Workers

Johannes Schmieder and Till von Wachter

American Economic Journal: Applied Economics, 2010, vol. 2, issue 3, 1-21

Abstract: Previous literature has found that tight labor market conditions during a job raise wages. Using the Displaced Worker Survey from 1984 to 2006, we show that wage gains associated with good labor market conditions disappear at job loss. We also find that workers with higher wages due to tight past labor market conditions face higher risk of layoff. These findings suggest an important role of persistent rigidities in the wage setting process that are related to layoff decisions. This supports the notion that downward rigid employment contracts help explain the Shimer (2005) "puzzle" of low wage relative to employment fluctuations. (JEL J31, J41, J63)

JEL-codes: J31 J41 J63 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/app.2.3.1
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Citations: View citations in EconPapers (44)

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