Endogenous Separations, Wage Rigidities and Unemployment Volatility

Mikael Carlsson and Andreas Westermark

No 2018:5, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: We show that in microdata, as well as in a search and matching model with flexible wages for new hires, wage rigidities of incumbent workers have substantial effects on separations and unemployment volatility. Allowing for an empirically relevant degree of wage rigidities for incumbent workers drives unemployment volatility, as well as the volatility of vacancies and tightness to that in the data. Thus, the degree of wage rigidity for newly hired workers is not a sufficient statistic for determining the effect of wage rigidities on macroeconomic outcomes. This finding affects the interpretation of a large empirical literature on wage rigidities.

Keywords: Search and matching; Unemployment volatility puzzle; Wage rigidities; Job Destruction (search for similar items in EconPapers)
JEL-codes: E30 J63 J64 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2018-04-20
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Related works:
Journal Article: Endogenous Separations, Wage Rigidities, and Unemployment Volatility (2022)
Working Paper: Endogenous Separations, Wage Rigidities and Employment Volatility (2020)
Working Paper: Endogenous Separations, Wage Rigidities and Employment Volatility (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ifauwp:2018_005

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