Business cycles and wage rigidity |
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| Authors: | Cristian Bartolucci |
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| Institution: | 1. Bank of Israel, Israel;2. Stern School of Business, New York University, United States;3. College for Academic Studies Or Yehuda, Israel;1. Australian Centre for Entrepreneurship Research, Queensland University of Technology, GPO Box 2434, Brisbane 4001 QLD, Australia;2. Jönköping International Business School, Sweden;1. GRiEE and Universidade de Vigo. Facultad de CC. Económicas y EE. As Lagoas Marcosende s/n 36310 Vigo, Spain;2. RGEA and Universidade de Vigo, Spain;1. College of Science, Harbin Engineering University, Harbin 150001, PR China;2. College of Automation, Harbin Engineering University, Harbin 150001, PR China;1. The University of Tokyo, Institute of Social Science, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan;2. Waseda University, Faculty of Education and Integrated Arts and Sciences, 1-6-1 Nishiwaseda, Shinjuku-ku, Tokyo 169-8050, Japan;3. Keio University, Faculty of Economics, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan |
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| Abstract: | In this paper, we analyze the impact of downward wage rigidity on the labor market dynamics. We shows that imposing downward wage rigidity in a matching model with cyclical fluctuations in productivity, endogenous match-destruction, and on-the-job search, quits are procyclical and layoffs countercyclical. Using the European Community Household Panel (ECHP), we provide evidence that downward wage rigidity is empirically relevant in ten European countries. Finally, we show that layoffs are countercyclical and quits are procyclical, as predicted by the model. |
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