Working Paper Series, Department of Economics, Uppsala University
Endogenous Separations, Wage Rigidities and Employment Volatility
() and Andreas Westermark
Abstract: We show that in micro data, as well as in a search and
matching model with endogenous separations and rigid wages, separations and
hence employment volatility are non-neutral to wage rigidities of incumbent
workers. In contrast to when all wages are flexible, the standard deviation
of unemployment in a model with rigid wages for incumbent workers (only)
matches the standard deviation in the data. Thus, the degree of wage
rigidity for newly hired workers is not a sufficient statistic for
determining the effect of wage rigidities on macroeconomic outcomes in this
class of models.
Keywords: Search and matching; Unemployment volatility puzzle; Wage rigidities; Job De-struction; (follow links to similar papers)
JEL-Codes: E30; J63; J64; (follow links to similar papers)
25 pages, August 30, 2016
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