The Financial Channel of Wage Rigidity

@inproceedings{Schoefer2015TheFC,
  title={The Financial Channel of Wage Rigidity},
  author={Benjamin Schoefer},
  year={2015}
}
Why do firms cut hiring so sharply in recessions? I propose that wage rigidity among incumbent workers forces firms to reduce hiring by squeezing their internal funds. Incumbents’ wage rigidity is an irrelevant fixed cost in standard macroeconomic models, which instead rely on wage rigidity among new hires. But much empirical evidence indicates that the wages of new hires, unlike those of incumbents, display little rigidity. I integrate financial constraints and incumbents’ wage rigidity – but… CONTINUE READING

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