The role of wage expectations in the labor market

Marta Garcia Rodriguez

No 2507, Working Papers from Banco de España

Abstract: High volatility in the U.S. labor market, coupled with a low correlation between labor market variables and productivity, presents a challenge for traditional search and matching models. This paper develops a search and matching model with internally rational agents who hold subjective wage expectations. This approach significantly improves alignment with U.S. labor market data, outperforming the standard rational expectations model. The model’s wage expectations are consistent with data from European Commission professional forecasters, adding a dynamic source that enhances the model’s fit to labor market moments.

Keywords: internal rationality; wage expectations; labor markets; subjective expectations; belief shock (search for similar items in EconPapers)
JEL-codes: D83 E24 E32 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2025-01
New Economics Papers: this item is included in nep-dge and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2507

DOI: 10.53479/38937

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