|Generate QR code
Open Access
Subscription Access
The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?
https://doi.org/10.32609/0042-8736-2011-1-65-88
Abstract
The author discusses the failure of the canonical search and matching model to explain the cyclical volatility in the job finding rate. The author - the Nobel Prize winner in economics in 2010 - shows that job creation in the model is influenced by wages in new matches. He summarizes microeconometric evidence and finds that wages in new matches are volatile and consistent with the models key predictions. Therefore, explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. The author discusses a modification of the model, based on fixed matching costs, that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches.
References
1. Abraham K. G., Haltiwanger J. C. Real Wages and the Business Cycle // Journal of Economic Literature. 1995. Vol. 33, No 3. P. 1215-1264.
2. Andolfatto D. Business Cycles and Labor Market Search // American Economic Review. 1996. Vol. 86, No 1. P. 112-132.
3. Arozamena L., Centeno M. Tenure, Business Cycle and the Wage Setting Process // European Economic Review. 2006. Vol. 50, No 2. P. 401-424.
4. Azariadis C. Implicit Contracts and Underemployment Equilibria // Journal of Political Economy. 1975. Vol. 83, No 6. P. 1183-1202.
5. Baily N. Wages and Employment Under Uncertain Demand // Review of Economic Studies. 1974. Vol. 41, No 1. P. 37-50.
6. Barlevy G. Why Are the Wages of Job Changers so Procyclical? // Journal of Labor Economics. 2001. Vol. 19. No 4. P. 837-878.
7. Barro R. J. Long-Term Contracting, Sticky Prices, and Monetary Policy // Journal of Monetary Economics. 1977. Vol. 3, No 3. P. 305-316.
8. Beaudry P., DiNardo P. The Effect of Implicit Contracts on the Movement of Wages Over the Business Cycle: Evidence From Micro Data // Journal of Political Economy. 1991. Vol. 99, No 4. 665-688.
9. Bell B., Nickell S., Quadrini G. Wage Equations, Wage Curves and All That // Labour Economics. 2002. Vol. 9, No 3. P. 341-360.
10. Bils M. J. Real Wages Over the Business Cycle: Evidence From Panel Data // Journal of Political Economy. 1985. Vol. 93, No 4. P. 666-689.
11. Blanchflower D. G., Oswald A. J. The Wage Curve. Cambridge, MA: MIT Press, 1994.
12. Blank R. M. Why Are Wages Cyclical in the 1970s? // Journal of Labor Economics. 1990. Vol. 8, No 1. P. 16-47.
13. Brandolini A. In Search of a Stylised Fact: Do Real Wages Exhibit a Consistent Pattern of Cyclical Variability? // Journal of Economic Surveys. 1995. Vol. 9, No 2. P. 103-163.
14. Braun H., De Bock R., Dececio R. Aggregate Shocks and Labor Market Fluctuations // Working Paper No 2006-004A / Federal Reserve Bank of St. Louis, 2006.
15. Card D. The Wage Curve: A Review // Journal of Economic Literature. 1995. Vol. 33, No 2. P. 785-799.
16. Carneiro A., Portugal P. Workers' Flows and Real Wage Cyclicality // Discussion Paper No 2604 / Institute for the Study of Labor (IZA). Bonn, 2007.
17. Cole H., Rogerson R. Can the Mortensen-Pissarides Matching Model Match the Business Cycle Facts? // International Economic Review. 1999. Vol. 40, No 4. P. 933-959.
18. Costain J. S., Reiter M. Business Cycles, Unemployment Insurance, and the Calibrationof Matching Models // Journal of Economic Dynamics and Control. 2008. Vol. 32, No 4. P. 1120-1155.
19. Davis S. J., Haltiwanger J. C., Schuh S. Job Creation and Destruction. Cambridge, MA: MIT Press, 2008.
20. Devereux P. J. The Cyclicality of Real Wages Within Employer-Employee Matches // Industrial and Labor Relations Review. 2001. Vol. 54, No 4. P. 835-850.
21. Devereux P. J., Hart R. A. Real Wage Cyclicality of Job Stayers, Within-Company Job Movers, and Between-Company Job Movers // Industrial and Labor Relations Review. 2006. Vol. 60, No 1. P. 105-119.
22. Discussion Paper No 0839 / Centre for Economic Performance (LSE). 2007. November Она также доступна по адресу: personal.lse.ac.uk/pissarid.
23. Elsby M. W., Michaels R., Solon G. The Ins and Outs of Cyclical Unemployment// American Economic Journal: Macroeconomics. 2009. Vol. 1, No 1. P. 84-110.
24. Grant D. The Effect of Implicit Contracts on the Movement of Wages Over the Business Cycle: Evidence From the National Longitudinal Surveys // Industrial and Labor Relations Review. 2003. Vol. 56, No 3. P. 393-408.
25. Haan W. den, Ramey G., Watson J. Job Destruction and the Propagation of Shocks // American Economic Review. 2000. Vol. 90, No 3. P. 482-498.
26. Haefke C., Sonntag M., Van Rens T. Wage Rigidity and Job Creation // Discussion Paper No 3714 / Institute for the Study of Labor (IZA). Bonn, 2007.
27. Hagedorn M., Manovskii I. The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited // American Economic Review. 2008. Vol. 98, No 4. P. 1692-1706.
28. Hagedorn M., Manovskii I., Stetsenko S. The Cyclical Behavior of EquilibriumUnemployment and Vacancies With Worker Heterogeneity. Unpublished Paper / University of Pennsylvania. 2008.
29. Hall R. E. Employment Fluctuations With Equilibrium Wage Stickiness // American Economic Review. 2005. Vol. 95, No 1. P. 50-65.
30. Hall R. E., Milgrom P. The Limited Influence of Unemployment on the Wage Bargain // American Economic Review. 2008. Vol. 98, No 4. P. 1653-1674.
31. Hall R. Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years // NBER Macroeconomics Annual / M. Gertler, K. Rogoff (eds.) Cambridge, MA: MIT Press, 2005. Р. 101-137.
32. Hornstein A., Krusell P., Violante G. L. Unemployment and Vacancy Fluctuations in the Matching Model: Inspecting the Mechanisms // Federal Reserve Bank of Richmond Economic Quarterly. 2005. Vol. 91, No 3. P. 19-51.
33. Langot F. Unemployment and Business Cycle: A General Equilibrium Matching Model / P.-Y. Henin (ed.). Advances in Business Cycle Research. Berlin: Springer, 1995. P. 287-322.
34. Macleod B. W., Malcomson M. J. Investments, Holdup, and the Form of Market Contracts // American Economic Review. 1993. Vol. 83, No 4. P. 811-837.
35. Mcdonald J. T., Worswick C. Wages, Implicit Contracts, and the Business Cycle: Evidence From Canadian Micro Data // Journal of Political Economy. 2006. Vol. 107, No 4. P. 884-892.
36. Merz M. Search in the Labor Market and the Real Business Cycle // Journal of Monetary Economics. 1995. Vol. 36, No 2. P. 269-300.
37. Mortensen D. T., Nagypál É. More on Unemployment and Vacancy Fluctuations // Review of Economic Dynamics. 2007. Vol. 10, No 3. P. 327-347.
38. Mortensen D. T., Pissarides C. A. Job Creation and Job Destruction in the Theory of Unemployment // Review of Economic Studies. 1994. Vol. 61, No 3. P. 397-415.
39. Nickel S., Nunziata L., Ochel W. Unemployment in the OECD Since the 1960s. What Do We Know? // Economic Journal. 2005. Vol. 115, No 500. P. 1-27.
40. Peng F., Siebert W. S. Real Wage Cyclicality in Germany and the UK: New Results Using Panel Data // Discussion Paper 2688, Institute for the Study of Labor (IZA), Bonn, 2007.
41. Peng F., Siebert W. S. Real Wage Cyclicality in Italy // Discussion Paper No 2465 / Institute for the Study of Labor (IZA). Bonn, 2006.
42. Pissarides C. A. Equilibrium Unemployment Theory. 2nd ed. Cambridge, MA: MIT Press, 2000. Ch. 1.
43. Pissarides C. A. Short-Run Equilibrium Dynamics of Unemployment, Vacancies, and Real Wages // American Economic Review. 1985. Vol. 75, No 4. P. 676-690.
44. Pissarides C. A. The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer? // Econometrica. 2009. Vol. 77, No 5. Р. 1339-1369.
45. Rotemberg J. Cyclical Wages in a Search-and-Bargaining Model With Large Firms // Discussion Paper 5791, Centre for Economic Policy Research, London, 2006.
46. Shaked A., Sutton J. Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Mode // Econometrica. 1984. Vol. 52, No 6. P. 1351-1364.
47. Shimer R. Reassessing the Ins and Outs of Unemployment. Unpublished Paper / University of Chicago, 2005.
48. Shimer R. The Consequences of Rigid Wages in Search Models // Journal of the European Economic Association.2004. Vol. 2, No 2-3. P. 469-479.
49. Shimer R. The Cyclical Behavior of Equilibrium Unemployment and Vacancies // American Economic Review. 2005. Vol. 95, No 1. P. 25-49.
50. Shin D. Cyclicality of Real Wages Among Young Men // Economics Letters. 1994. Vol. 46, No 2. P. 137-142.
51. Shin D., Solon G. New Evidence on Real Wage Cyclicality Within Employer-Employee Matches // Working Paper 12262, National Bureau of Economic Research. 2006.
52. Solon G., Barsky R., Parker J. A. Measuring the Cyclicality of Real Wages: How Important Is Composition Bias? // Quarterly Journal of Economics. 1994. Vol. 109, No 1. P. 1-25.
53. Thomas J., Worral T. Self-Enforcing Wage Contracts // Review of Economic Studies. 1988. Vol. 55, No 4. P. 541-554.
54. Yashiv E. Labor Search and Matching in Macroeconomics // European Economic Review. 2007. Vol. 51, No 8. P. 1859-1895.
Review
For citations:
Pissarides Ch. The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer? Voprosy Ekonomiki. 2011;(1):65-88. (In Russ.) https://doi.org/10.32609/0042-8736-2011-1-65-88
Views:
773
Email this article 
