Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires

Mark Gertler, Christopher Huckfeldt, Antonella Trigari

    Research output: Contribution to journalArticle

    Abstract

    We revisit the issue of the high cyclicality of wages of new hires. We show that after controlling for composition effects likely involving procyclical upgrading of job match quality, the wages of new hires are no more cyclical than those of existing workers. The key implication is that the sluggish behaviour of wages for existing workers is a better guide to the cyclicality of the marginal cost of labour than is the high measured cyclicality of new hires wages unadjusted for composition effects. Key to our identification is distinguishing between new hires from unemployment versus those who are job changers. We argue that to a reasonable approximation, the wages of the former provide a composition-free estimate of the wage flexibility, while the same is not true for the latter. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and heterogeneous match quality, and show that it can account for both the panel data evidence and aggregate evidence on labour market volatility.

    Original languageEnglish (US)
    Pages (from-to)1876-1914
    Number of pages39
    JournalReview of Economic Studies
    Volume87
    Issue number4
    DOIs
    StatePublished - Jul 1 2020

    Keywords

    • E24
    • E32
    • J30
    • J41
    • J63
    • J64
    • Unemployment volatility
    • Wage cyclicality

    ASJC Scopus subject areas

    • Economics and Econometrics

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