Wage rigidity and job creation

Christian Haefke (), Marcus Sonntag and Thijs van Rens

No 1504, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Standard macroeconomic models underpredict the volatility of unemployment fluctuations. A common solution is to assume wages are rigid. We explore whether this explanation is consistent with the data. We show that the wage of newly hired workers, unlike the aggregate wage, is volatile and responds one-to-one to changes in labor productivity. In order to replicate these findings in a search model, it must be that wages are rigid in ongoing jobs but flexible at the start of new jobs. This form of wage rigidity does not affect job creation and thus cannot explain the unemployment volatility puzzle.

Keywords: Wage Rigidity; Search and Matching Model; Business Cycle (search for similar items in EconPapers)
JEL-codes: E24 E32 J31 J41 J64 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1504

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