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The unemployment volatility puzzle: is wage stickiness the answer?

Pissarides, Christopher (2009) The unemployment volatility puzzle: is wage stickiness the answer? Econometrica, 77 (5). pp. 1339-1369. ISSN 0012-9682

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Identification Number: 10.3982/ECTA7562


I discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate. I show that job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model's key predictions. Therefore, explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss a modification of the model, based on fixed matching costs, that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches.

Item Type: Article
Official URL:
Additional Information: © 2009 The Econometric Society
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 11 Jan 2010 11:05
Last Modified: 20 Oct 2021 01:47

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