Working Paper: CEPR ID: DP8968
Authors: Christian Haefke; Marcus Sonntag; Thijs van Rens
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: Business Cycle; Search and Matching Models; Wage Rigidity
JEL Codes: E24; E32; J31; J41; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wage of newly hired workers (J31) | Productivity (O49) |
| Productivity (O49) | Wage of newly hired workers (J31) |
| Ongoing job relationships (J63) | Wage rigidity (J31) |
| Wage rigidity (J31) | Job creation responses to productivity shocks (O49) |