Working Paper: NBER ID: w19821
Authors: Mark Bils; Yongsung Chang; Sunbin Kim
Abstract: We consider a matching model of employment with wages that are flexible for new hires, but sticky within matches. We depart from standard treatments of sticky wages by allowing effort to respond to the wage being too high or low. Shimer (2004) and others have illustrated that employment in the Mortensen-Pissarides model does not depend on the degree of wage flexibility in existing matches. But this is not true in our model. If wages of matched workers are stuck too high in a recession, then firms will require more effort, lowering the value of additional labor and reducing new hiring.
Keywords: sticky wages; hiring; labor market; effort
JEL Codes: E24; E32; J22; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sticky wages of matched workers (J31) | Increased effort required by firms (D21) |
| Increased effort required by firms (D21) | Reduced new hiring (J23) |
| Sticky wages of matched workers (J31) | Reduced new hiring (J63) |
| Increased effort from existing workers (J29) | Lower hiring rates for new workers (J63) |