Wage Rigidity and Job Creation

Haefke, Christian; Sonntag, Marcus; van Rens, Thijs

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Wage Rigidity and Job Creation

CEPR Discussion Paper No. DP8968

47 Pages Posted: 25 May 2012

See all articles by Christian Haefke

Christian Haefke

Institute for Advanced Studies (IHS); NYU, Abu Dhabi; IZA Institute of Labor Economics

Thijs van Rens

University of Warwick - Department of Economics; CEPR; Institute for the Study of Labor (IZA)

There are 3 versions of this paper

Date Written: May 2012

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 Classification: E24, E32, J31, J41, J64

Suggested Citation: Suggested Citation

Haefke, Christian and Sonntag, Marcus and van Rens, Thijs, Wage Rigidity and Job Creation (May 2012). CEPR Discussion Paper No. DP8968, Available at SSRN: https://ssrn.com/abstract=2066340