How Sticky Wages In Existing Jobs Can Affect Hiring

Mark Bils, Yongsung Chang and Sun-Bin Kim

No 2016rwp-91, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: We consider a matching model of employment with flexible wages for new hires, but sticky wages within matches. Unlike most models of sticky wages, we allow effort to re- spond if wages are too high or too low. In the Mortensen-Pissarides model, employment is not affected by wage stickiness in existing matches. But it is in our model. If wages of matched workers are stuck too high, firms require more effort, lowering the value of additional labor and reducing hiring. We find that effort's response can greatly increase wage inertia and the volatility of employment relative to that in measured productivity.

Keywords: Effort; Employment; Sticky Wages; Wage Inertia (search for similar items in EconPapers)
JEL-codes: E24 E32 J22 (search for similar items in EconPapers)
Pages: 65pages
Date: 2016-10
New Economics Papers: this item is included in nep-dge, nep-hrm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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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)
Working Paper: How Sticky Wages in Existing Jobs can affect Hiring (2013)
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