How Sticky Wages in Existing Jobs can affect Hiring

Yongsung Chang, Sun-Bin Kim and Mark Bils

No 1162, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We consider a matching model of employment with wages that are flexible for new hires, but sticky within matches. We depart from standard treatments of sticky wages by allowing worker effort to respond to the wage being too high or low, rendering the effective wage (wage divided by output) more flexible. Shimer (2004), Pissarides (2009), and others have illustrated that employment in the Mortensen-Pissarides model does not depend on the degree of wage flexibility in existing matches. But this is not true in our model. If wages of matched workers are stuck too high in a recession, then firms will require they provide more effort. In turn, this lowers the value of additional labor, reducing new hiring.

Date: 2013
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Related works:
Journal Article: How Sticky Wages in Existing Jobs Can Affect Hiring (2022)
Working Paper: How Sticky Wages In Existing Jobs Can Affect Hiring (2019)
Working Paper: How Sticky Wages in Existing Jobs Can Affect Hiring (2014)
Working Paper: How Sticky Wages In Existing Jobs Can Affect Hiring (2014)
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