Wage Rigidity and Job Creation

• Authors: Marcus Sonntag, Christian Haefke and Thijs van Rens.
• BSE Working Paper: 629 | September 15
• Keywords: business cycle , wage rigidity , search and matching model
• JEL codes: E24, E32, J31, J41, J64
• business cycle
• wage rigidity
• search and matching model

Recent research in macroeconomics emphasizes the role of wage rigidity in ac- counting for the volatility of unemployment fluctuations. We use worker-level data from the CPS to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions. The wage of new hires, unlike the aggregate wage, is volatile and responds almost one-to-one to changes in labor productivity. We conclude that there is little evidence for wage stickiness in the data. We also show, however, that a little wage rigidity goes a long way in amplifying the response of job creation to productivity shocks.