Are wages rigid over the business cycle?

Search models of the labor market suggest that a significant determinant of job creation decisions by firms is the expected value of the initial and future real wages that firms have to pay to workers in newly formed employment relationships. Until recently, the focus of the empirical literature has been on the cyclical behavior of the current wage, but not on the cyclical behavior of the expected present discounted value of future wages within a match. This article reviews the empirical literature on the cyclicality of real wages of workers in continuing employment relationships, wages of newly hired workers, and a measure of wages that takes into account future wages within employment relationships. The existing evidence suggests that the real wage most relevant for job creation decisions appears to be quite flexible over the business cycle. Thus, the wage data do not support the rigidity necessary to generate the empirical volatility of unemployment in the standard search and matching model.Labor market ; Unemployment ; Business cycles

The responses of small and large firms to tight credit shocks : the case of 2008 through the lens of Gertler and Gilchrist (1994)

Do large firms and small firms behave differently when credit becomes more costly or harder to obtain? Past research has found that small firms are more likely to be credit-constrained and thus tend to be affected more negatively than large firms during such times. Recent findings from the 2007-2009 recession, however, raise questions about the roles of small and large firms during periods of tight creditBusiness cycles ; Recessions

Comparing labor markets across recessions: a focus on the age composition of the population

Simply looking at unadjusted versions of traditional statistics may not be the best way to compare the state of the current economy to previous periods. When comparing recessions, it is important to account for demographic changes.Labor market ; Demography

The labor market in Ukraine: rebuild better

The Ukrainian labour market not only needs to be rebuilt, it needs to be rebuilt better. The unprecedented challenges imposed by the reconstruction can only be faced by a labour market that promotes participation and eases the reallocation of workers across jobs. This was not the case for the labour market in Ukraine before the bloody Russian invasion. Reconstruction will therefore require a mix of emergency measures to deal with the legacies of the war and structural reforms to address pre-existing inefficiencies of the labour market. In this chapter, we illustrate the challenges in light of experience of other European countries that have gone through military conflicts in the recent past and propose strategies for action

Deterring default: why some state laws decrease the probability of mortgage foreclosures

Many states give mortgage lenders strong legal means by which to pursue debt collection in the event of a mortgage default. In those states, probability of default is lower and the forms the default takes are often quite different from a costly conventional foreclosure.Consumer finance ; Financial institutions ; Mortgage loans

The Behavioral SI* Model, with Applications to the Swine Flu and COVID-19 Pandemics

The 1927 SIR contagion model is the dynamical system for an infection that passes at a constant rate in random pairwise meetings. Our Behavioral SI* Model assumes that everyone has access to a constant elasticity of avoidance technology. We then derive the passing rate in fully solvable Nash equilibrium of the game where everyone optimizes. The resulting dynamics are log-linear, and incidence is log-linear in prevalence, with slope less than one. The SI* models yields extreme predictions for major contagions, not realized. At breakout, the SI* models capture exponential growth. In our BSI* model, increasing avoidance behavior bends the curve, and induces herd immunity at lower prevalence but a later time. Our model is tractable, and better explains incidence data during the 2009 Swine Flu and the COVID-19 pandemic. In both cases, we statistically reject the SIR model. For Swine Flu, across states, the prevalence elasticity ranges from 0.8 to 0.9. We find a similar slope at breakout in the COVID-19 pandemic, and verify that its curve bending matches our BSI* formula. The BSI* model captures mandated social distancing or lockdowns in downward shifts of the line in log-prevalance - log-incidence space