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Title: Three Essays in Economics

Citation Type: Dissertation/Thesis

Publication Year: 2016

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Abstract: Downward nominal wage rigidity is often hypothesized to amplify unemployment fluctuations by constraining the responsiveness of wages to negative shocks. There is considerable evidence that the wages of incumbent workers are downwardly rigid, but the wages of new hires appear to be significantly more flexible. Because entry wages determine job creation over the business cycle, a substantial literature argues that downward nominal wage rigidity (hereafter, wage rigidity) is unlikely to explain unemployment dynamics. In this paper we argue that the apparent flexibility of entry wages is an artifact of selection bias. If unemployed workers are heterogeneous in their ability or willingness to reduce their reservation wages, those with more flexible reservation wages will be more likely to become re-employed. Because new hires will be disproportionately workers with flexible wages, the observed wages of new hires will appear flexible. The unobserved reservation wages of the workers who are not hired, however, may be quite rigid.

Url: https://deepblue.lib.umich.edu/bitstream/handle/2027.42/133469/mathall_1.pdf?sequence=1&isAllowed=y

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Authors: Hall, Matthew G

Institution: University of Michigan

Department: Economics

Advisor: George A Fulton

Degree: Doctor of Philosophy in Economics

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Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Poverty and Welfare

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