Working Paper: NBER ID: w11183
Authors: Robert E. Hall
Abstract: I consider three views of the labor market. In the first, wages are flexible and employment follows the principle of bilateral efficiency. Workers never lose their jobs because of sticky wages. In the second view, wages are sticky and inefficient layoffs do occur. In the third, wages are also sticky, but employment governance is efficient. I show that the behavior of flows in the labor market strongly favors the third view. In the modern U.S. economy, recessions do not begin with a burst of layoffs. Unemployment rises because jobs are hard to find, not because an unusual number of people are thrown into unemployment.
Keywords: Labor Market; Sticky Wages; Employment Dynamics
JEL Codes: E24; E32; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced hiring profitability (J63) | increased unemployment (J65) |
| stability of established employment relationships (J63) | decline in jobfinding rates (J68) |
| increased unemployment (J65) | decline in jobfinding rates (J68) |
| recessions (E32) | stable separation rates (J12) |