Wage Rigidity and Job Creation

57 Pages Posted: 10 Sep 2007  

Christian Haefke

Institute for Advanced Studies (IHS); NYU, Abu Dhabi; IZA Institute of Labor Economics

Marcus Sonntag

University of Bonn

Thijs van Rens

University of Warwick - Department of Economics; CEPR; Institute for the Study of Labor (IZA)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2007

Abstract

Shimer (2005) and Hall (2005) have documented the failure of standard labor market search models to match business cycle fluctuations in employment and unemployment. They argue that it is likely that wages are not adjusted as regularly as suggested by the model, which would explain why employment is more volatile than the model predicts. We explore whether this explanation is consistent with the data. The main insight is that the relevant wage data for the search model are not aggregate wages, but wages of newly hired workers. Our results show that wages for those workers are much more volatile than aggregate wages and respond one-for-one to changes in labor productivity. Thus, we find no evidence for wage rigidity.

Keywords: Wage Rigidity, Search and Matching Model, Business Cycle

JEL Classification: E24, E32, J31, J41, J64

Suggested Citation

Haefke, Christian and Sonntag, Marcus and van Rens, Thijs, Wage Rigidity and Job Creation (July 2007). Available at SSRN: https://ssrn.com/abstract=1012792 or http://dx.doi.org/10.2139/ssrn.1012792

Christian Haefke

Institute for Advanced Studies (IHS) ( email )

Stumpergasse 56
A-1060 Vienna
Austria

NYU, Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Marcus Sonntag

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Thijs Van Rens (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.thijsvanrens.com

CEPR ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=158946

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/profile?key=3806

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