Alternating offers with asymmetric information and the unemployment volatility puzzle

Labour Economics, 2018, vol. 50, issue C, 87-91

Abstract: To provide micro-founded real wage rigidities, the literature on the unemployment volatility puzzle has considered alternating offers on one side, and asymmetric information on the other. Separately, however, these two frameworks deliver a limited amount of wage stickiness and thus require questionable calibrations to raise unemployment fluctuations. In this paper, we argue that the alternating offers model with one-sided asymmetric information, which combines the two frameworks, gives a more satisfactory answer to the puzzle. The results are improved along two dimensions. First, we show that this model is capable to generate large unemployment movements for a realistic calibration. Secondly, the model produces a right degree of real wage pro-cyclicality for such a calibration and therefore delivers a micro-founded explanation to real wage rigidities.

Keywords: Unemployment and vacancies volatility; Wage bargaining; Wage rigidity (search for similar items in EconPapers)
JEL-codes: E J63 J64 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:50:y:2018:i:c:p:87-91

DOI: 10.1016/j.labeco.2017.08.001

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