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How Sticky Wages in Existing Jobs Can Affect Hiring

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Issue Date
2022-01-01
Publisher
American Economic Association
Citation
American Economic Journal: Macroeconomics, Vol.14 No.1, pp.1-37
Abstract
We consider a matching model of employment with flexible wages for new hires but sticky wages within matches. Unlike most models of sticky wages, we allow effort to respond if wages are too high or too low. In the Mortensen-Pissarides model, employment is not affected by wage stickiness in existing matches. But it is in our model. If wages of matched workers are stuck too high, firms require more effort, lowering the value of additional labor and reducing hiring. We find that effort's response can greatly increase wage inertia.
ISSN
1945-7707
URI
https://hdl.handle.net/10371/179556
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Appears in Collections:
College of Social Sciences (사회과학대학)Dept. of Economics (경제학부)Journal Papers (저널논문_경제학부)
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