The Consequences of Rigid Wages in Search Models / Robert Shimer.

By:

Shimer, Robert

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10326.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

E24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity
E32 - Business Fluctuations • Cycles

Online resources:

Available additional physical forms:

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Abstract: The standard theory of equilibrium unemployment, the Mortensen-Pissarides search and matching model, cannot explain the magnitude of the business cycle fluctuations in two of its central elements, unemployment and vacancies. Modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude, significantly improving the performance of the model. Despite this, the welfare consequences of such rigid wages is negligible.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10326 (Browse shelf(Opens below))	Not For Loan

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February 2004.

The standard theory of equilibrium unemployment, the Mortensen-Pissarides search and matching model, cannot explain the magnitude of the business cycle fluctuations in two of its central elements, unemployment and vacancies. Modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude, significantly improving the performance of the model. Despite this, the welfare consequences of such rigid wages is negligible.