() and Andreas Westermark
Mikael Carlsson: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Andreas Westermark: Sveriges Riksbank, Postal: Research Department, , SE-103 37, Stockholm, Sweden
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.
25 pages, August 30, 2016
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