Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor

Bjoern Bruegemann and Giuseppe Moscarini

Review of Economic Dynamics, 2010, vol. 13, issue 3, 575-596

Abstract: Two thirds of US unemployment volatility is due to fluctuations in workers' job finding rate. In search and matching models, aggregate productivity shocks generate such fluctuations: through firms recruiting effort, they affect the rate at which workers and firms come into contact. Quantitatively, this mechanism has been found to be negligible in a calibrated textbook model, but also more than sufficient if wages are completely rigid. We study a weaker concept of rigidity based on worker rents (wages in excess of the value of unemployment). We show that volatility is subject to an upper bound if worker rents are weakly procyclical, thus at best rigid. Quantitatively, with Rent Rigidity, the mechanism accounts for at most 20% of the variance of the job finding rate. In light of this result we reexamine the question whether asymmetric information on gains from trade amplifies fluctuations. We analyze a series of bargaining solutions, and conclude that asymmetric information at best makes rents rigid. Our analysis provides a unifying perspective on a very lively debate. (Copyright: Elsevier)

Keywords: Asymmetric information; Wage bargaining; Rent rigidity; Unemployment fluctuations; Volatility bound; Wage rigidity (search for similar items in EconPapers)
JEL-codes: C78 D82 E24 E32 J30 J64 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2009.10.009
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor Markets" (2009)
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:red:issued:08-208

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2009.10.009

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().