Abstract for:

The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?

Christopher A.  Pissarides,  November 2007
Paper No' CEPDP0839: | Full paper

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Keywords: wages; unemployment, wage stickiness, job creation

JEL Classification: J63; J64; E3

Is hard copy/paper copy available? YES - Paper Copy Still In Print.

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This Paper is published under the following series: CEP Discussion Papers

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Abstract:

I study the cyclical behavior of an equilibrium search model with endogenous job creation and destruction, with focus on 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.