Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market

30 Pages Posted: 5 Apr 2005 Last revised: 24 Jul 2022

See all articles by Robert E. Hall

Robert E. Hall

Hoover Institution and Department of Economics, Stanford University; National Bureau of Economic Research (NBER)

Date Written: March 2005

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.

Suggested Citation

Hall, Robert E., Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market (March 2005). NBER Working Paper No. w11183, Available at SSRN: https://ssrn.com/abstract=684709

Robert E. Hall (Contact Author)

Hoover Institution and Department of Economics, Stanford University ( email )

Stanford, CA 94305-6010
United States
650-723-2215 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
650-723-2215 (Phone)

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