 Downward wage rigidity and business cycle asymmetriesMirko Abbritti and Stephan Fahr Journal of Monetary Economics, 2013, vol. 60, issue 7, 871-886 Abstract: The growth rates of wages, unemployment and output of a number of OECD countries have a strongly skewed distribution. In this paper we analyze to what extent downward wage rigidities can explain these empirical business cycle asymmetries. To this aim, we introduce asymmetric wage adjustment costs in a New-Keynesian DSGE model with search and matching frictions in the labor market. Increasing wages is less costly than cutting them. It follows that wages increase relatively fast and thus limit vacancy posting and employment creation, but they decline more slowly, leading to a strong reduction in vacancies and employment. The presence of downward wage rigidities strongly improves the fit of the model to the observed skewness of labor market variables and the relative length of expansions and contractions in the output and the employment cycles. The asymmetry also explains the differing transmission of positive and negative monetary policy shocks from wages to inflation. Keywords: Labor market; Unemployment; Downward wage rigidity; Asymmetric adjustment costs; Non-linear dynamics (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:7:p:871-886 DOI: 10.1016/j.jmoneco.2013.08.001 Access Statistics for this article Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser More articles in Journal of Monetary Economics from Elsevier |
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