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Department of Economics, Uppsala University Working Paper Series, Department of Economics, Uppsala University

No 2016:12:
Endogenous Separations, Wage Rigidities and Employment Volatility

Mikael Carlsson () 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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