Wage Rigidity and Job Creation

Andemic Informality: Assessing Labor Informality, Employment and Income Risk in the Andes

“…He also claims that an examination of panel data evidence on the volatility of wages in new jobs shows that volatility is about the same as in the Nash wage equation of the canonical search and matching model. In a related vein, Haefke, Sonntag, and Van Rens (2008) find that US data are consistent with the conventional argument that wages are rigid, but only in ongoing jobs. But they also find that this is no longer the case for wages of newly hired workers or new matches.…”

“…Whereas theoretical contributions addressing these or closely related issues are not new (Rosen 1985;Malcomson 1999; and in general the review in Chapter 6 of , related applied literature exploiting mobility as an argument to distill wage-productivity elasticities is quite recent. Indeed, as Goñi-Pacchioni (2011) points out, significant efforts in the labor market literature have been devoted to finding some mechanism to improve the performance of labor market models with search frictions in order to match the business-cycle information found in the data (Haefke, Sonntag, and Van Rens 2008;Carlsson, Messina, and Nordstrom 2011;Carneiro, Gimaraes, and Portugal 2009;Gertler and Trigari 2009;Costain and Reiter 2008;Menzio 2005;Rudanko 2008;Farmer 2006;Moen and Rosen 2006;Blanchard and Gali 2008;Hall and Milgrom 2008;Shimer 2009). Most of these contributions stress the importance of marginal workers (or equivalently, workers transiting from unemployment into employment in the flow of job creation or simply new hires) in the wage bargaining process.…”

“…However, after accounting for worker unobserved heterogeneity they find that the response of the wages of incumbents and new hires to productivity shocks is nonstatistically different. One reason that may drive the different outcome of Haefke, Sonntag, and Van Rens (2008) and Carlsson, Messina, and Nordstrom (2011) is the level of disaggregation of the data they exploit for the productivity variable. While the former exploit aggregate measures of productivity, the latter exploit worker-firm matched data.…”

“…At the same time, workers with a formal status might have bargaining powers that informal workers lack (and informal workers might renegotiate their salaries more frequently). In addition, given that our attention is mostly focused on new hires and job movers, another source of heterogeneity bias stems from the fact that newly hired workers may not be representative of the entire labor force (Table 4.2) and the com-position of newly hired workers varies over the business cycle, as is pointed out by Haefke, Sonntag, and Van Rens (2008) and Goñi-Pacchioni (2011). Such sources of heterogeneity would generate a bias in the estimate of wage cyclicality (Solon, Barsk, and Parker 1994).…”

“…Such sources of heterogeneity would generate a bias in the estimate of wage cyclicality (Solon, Barsk, and Parker 1994). We follow the approach of Haefke, Sonntag, and Van Rens (2008) to take into account individual heterogeneity and we cope with aggregate heterogeneity partly by distinguishing among mobility groups and labor sectors and partly by analyzing the wages after controlling for characteristics. Thus, the wage of an individual worker i of the group j at time t, depends in part on the individual characteristics of worker i and in part on a residual that may or may not depend on aggregate labor market conditions: 9 ln w ln w x it j st…”