TY  - JOUR
AU  - Shimer,Robert
TI  - The Consequences of Rigid Wages in Search Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10326
PY  - 2004
Y2  - February 2004
UR  - http://www.nber.org/papers/w10326
L1  - http://www.nber.org/papers/w10326.pdf
N1  - Author contact info:
Robert Shimer
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-9015
E-Mail: shimer@uchicago.edu
AB  - 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.
ER  -