NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Sticky Wages in Existing Jobs Can Affect Hiring

Mark Bils, Yongsung Chang, Sun-Bin Kim

NBER Working Paper No. 19821
Issued in January 2014
NBER Program(s):   EFG

We consider a matching model of employment with wages that are flexible for new hires, but sticky within matches. We depart from standard treatments of sticky wages by allowing effort to respond to the wage being too high or low. Shimer (2004) and others have illustrated that employment in the Mortensen-Pissarides model does not depend on the degree of wage flexibility in existing matches. But this is not true in our model. If wages of matched workers are stuck too high in a recession, then firms will require more effort, lowering the value of additional labor and reducing new hiring.

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Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19821

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