Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires

72 Pages Posted: 9 Sep 2016

See all articles by Mark Gertler

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Christopher Huckfeldt

Cornell University

Antonella Trigari

Bocconi University - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: May 31, 2016

Abstract

Macroeconomic models often incorporate some form of wage stickiness to help account for employment fluctuations. However, a recent literature calls in to question this approach, citing evidence of new hire wage cyclicality from panel data studies as evidence for contractual wage flexibility for new hires, which is the relevant margin for employment volatility. We analyze data from the SIPP and find that the wages for new hires coming from unemployment are no more cyclical than those of existing workers, suggesting wages are sticky at the relevant margin. The new hire wage cyclicality found in earlier studies instead appears to reflect cyclical average wage gains of workers making job-to-job transitions, which we interpret as evidence of procyclical match quality for new hires from employment. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and variable match quality, and show that it can account for both the panel data evidence and aggregate labor market regularities. An additional implication of the model is that a sullying effect of recessions emerges, along the lines originally suggested by Barlevy (2002).

Suggested Citation

Gertler, Mark and Huckfeldt, Christopher and Trigari, Antonella, Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires (May 31, 2016). BAFFI CAREFIN Centre Research Paper No. 2016-34, Available at SSRN: https://ssrn.com/abstract=2836495 or http://dx.doi.org/10.2139/ssrn.2836495

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Christopher Huckfeldt

Cornell University ( email )

Antonella Trigari (Contact Author)

Bocconi University - Department of Economics ( email )

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Italy

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