Ellington, M., Martin, C. and Wang, B. (2024) Revisiting real wage rigidity. Journal of Money, Credit and Banking, 56 (2-3). pp. 613-626. ISSN 0022-2879
Abstract
In this paper, we provide empirical evidence that real wage rigidity is not a major cause of unemployment volatility. We argue that there is a disconnect between the theoretical and empirical literatures on this topic. While theoretical studies define real wage rigidity as the response of wages to changes in unemployment following productivity shocks, the empirical literature measures real wage rigidity as the estimated semi-elasticity of wages with respect to unemployment, averaged over all shocks. We show that averaging over shocks gives a biased measure of real wage rigidity, as the impact of other shocks confounds the response to productivity shocks. Our results indicate that the estimated semi-elasticity with respect to productivity shocks is twice as large as the estimated semi-elasticity averaged over all shocks. This implies that one cannot attribute unemployment volatility to real wage rigidity.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2023 The Authors. Journal of Money, Credit and Banking published by Wiley Periodicals LLC on behalf of Ohio State University. This is an open access article under the terms of the Creative Commons Attribution License, (http://creativecommons.org/licenses/by/4.0/) which permits use, distribution and reproduction in any medium, provided the original work is properly cited. |
Keywords: | real wage rigidity; time-varying parameter model; real wages; search frictions |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 04 Nov 2022 13:02 |
Last Modified: | 03 Oct 2024 09:03 |
Status: | Published |
Publisher: | Wiley |
Refereed: | Yes |
Identification Number: | 10.1111/jmcb.13056 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:192856 |
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