Working Paper: NBER ID: w22341
Authors: Mark Gertler; Christopher Huckfeldt; Antonella Trigari
Abstract: Macroeconomic models often incorporate some form of wage stickiness to help account for employment fluctuations. However, a recent literature calls in to question this approach, citing evidence of new hire wage cyclicality from panel data studies as evidence for contractual wage flexibility for new hires, which is the relevant margin for employment volatility. We analyze data from the SIPP and find that the wages for new hires coming from unemployment are no more cyclical than those of existing workers, suggesting wages are sticky at the relevant margin. The new hire wage cyclicality found in earlier studies instead appears to reflect cyclical average wage gains of workers making job-to-job transitions, which we interpret as evidence of procyclical match quality for new hires from employment. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and variable match quality, and show that it can account for both the panel data evidence and aggregate labor market regularities. An additional implication of the model is that a sullying effect of recessions emerges, along the lines originally suggested by Barlevy (2002)
Keywords: unemployment; wage cyclicality; match quality; new hires
JEL Codes: E32; J3; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cyclicality of new hire wages from unemployment (J64) | cyclicality of new hire wages from other jobs (J39) |
| cyclicality of new hire wages (J39) | procyclical improvements in match quality (L15) |
| aggregate economic conditions (E10) | wage cyclicality (J31) |
| new hire wages from unemployment (J65) | sticky wages (J31) |
| job-to-job transitions (J62) | cyclicality of new hire wages (J39) |
| cyclical movements in match quality (L15) | observed cyclicality in new hire wages (J39) |
| sticky wages (J31) | appearance of wage flexibility (J31) |