Paper #1047

Title:

Wage rigidity and job creation

Authors:

Christian Haefke, Marcus Sonntag and Thijs van Rens

Date:

April 2007 (Revised: April 2012)

Abstract:

Recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations. We use worker-level data from the CPS to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions. The wage of new hires, unlike the aggregate wage, is volatile and responds almost one-to-one to changes in labor productivity. We conclude that there is little evidence for wage stickiness in the data. We also show, however, that a little wage rigidity goes a long way in amplifying the response of job creation to productivity shocks.

Keywords:

Wage Rigidity, Search and Matching Model, Business Cycle

JEL codes:

E24, E32, J31, J41, J64

Area of Research:

Macroeconomics and International Economics

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