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Searching for Wages in an Estimated Labor Matching Model

Ryan Chahrour, Sanjay Chugh and Tristan Potter

No 867, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We estimate a real business cycle economy with search frictions in the labor market in which the latent wage follows a non-structural ARMA process. The estimated model does an excellent job matching a broad set of quantity data and wage indicators. Under the estimated process, wages respond immediately to shocks but converge slowly to their long-run levels, inducing substantial variation in labor's share of surplus. These results are not consistent with either a rigid real wage or flexible Nash bargaining. Despite inducing a strong endogenous response of wages, neutral shocks to productivity account for the vast majority of aggregate fluctuations in the economy, including labor market variables.

Keywords: Search and Matching; Wages; Unemployment; Business Cycles (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2014-12-17, Revised 2016-12-20
New Economics Papers: this item is included in nep-dge, nep-lab, nep-lma and nep-mac
Note: Previously circulated as "Wages and Wedges in an Estimated Labor Search Model"
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Related works:
Working Paper: Searching for Wages in an Estimated Labor Matching Model (2017) Downloads
Working Paper: Searching for Wages in an Estimated Labor Matching Model (2016) Downloads
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