Abstract
The existing literature often incorporates ad-hoc models of exogenous real wage rigidity into search frictions models of the labour market in order to match the large volatility of unemployment observed in the data. In this paper, we develop an alternative version of the search frictions model that incorporates insights from behavioural economics. We derive a model in which endogenous real wage rigidity emerges from optimal wage-setting and show that this model can match the observed volatility of unemployment. Thus our proposed model can match the data as closely as the existing literature but without the disadvantage of assuming
exogenous and ad hoc forms of real wage rigidity.
exogenous and ad hoc forms of real wage rigidity.
| Original language | English |
|---|---|
| Article number | 5 |
| Pages (from-to) | 1016-1035 |
| Number of pages | 20 |
| Journal | Oxford Economic Papers |
| Volume | 70 |
| Issue number | 4 |
| Early online date | 9 Jun 2018 |
| DOIs | |
| Publication status | Published - 31 Oct 2018 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth
ASJC Scopus subject areas
- Economics and Econometrics
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