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The unemployment volatility puzzle: is wage stickiness the answer?

Pissarides, Christopher (2007) The unemployment volatility puzzle: is wage stickiness the answer? 839. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 839

Abstract

I study the cyclical behavior of an equilibrium search model with endogenous job creation and destruction, with focus the model’s failure to match the observed cyclical volatility of unemployment.. Job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence on wages in new matches and show that the key model elasticities are consistent with the evidence. Therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss some extensions of the model that can increase cyclical unemployment volatility through mechanisms other than wage stickiness.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2007 Christopher Pissarides
Subjects: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 23 Sep 2008 09:48
Last Modified: 01 Oct 2010 08:52
URI: http://eprints.lse.ac.uk/id/eprint/4460

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