Employment Fluctuations with Downward Wage Rigidity: The Role of Moral Hazard

James Costain and Marcel Jansen

Scandinavian Journal of Economics, 2010, vol. 112, issue 4, 782-811

Abstract: We study the cyclical dynamics of job creation and destruction when workers' effort is not perfectly observable. The no‐shirking constraint may amplify fluctuations in hiring by making firms' surplus share procyclical, and may cause a burst of inefficient firing when a downturn begins. But quantitatively, it mainly raises the cost of motivating marginal workers in booms, since firms cannot commit to keep them in recessions, and thereby strongly damps the countercyclical fluctuations in the separation rate. This implies a robust Beveridge curve, but casts doubt on Ramey and Watson's (1997)“contractual fragility” mechanism and worsens Shimer's (2005a)“volatility puzzle”.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://doi.org/10.1111/j.1467-9442.2010.01625.x

Related works:
Working Paper: Employment Fluctuations with Downward Wage Rigidity: The Role of Moral Hazard (2009)
Working Paper: Employment fluctuations with downward wage rigidity: the role of moral hazard (2006)
Working Paper: Employment Fluctuations with Downward Wage Rigidity (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:112:y:2010:i:4:p:782-811

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten

More articles in Scandinavian Journal of Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().