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WAGE ADJUSTMENT AND EMPLOYMENT PERSISTENCY

Published online by Cambridge University Press:  01 December 1998

Torben M. Andersen  and
Svend Hylleberg
Torben M. Andersen
Affiliation:
University of Aarhus
Svend Hylleberg
Affiliation:
University of Aarhus
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Abstract

Persistent high unemployment has fostered the employment persistency hypothesis according to which employment changes are driven by unanticipated shocks whereas anticipated shocks that potentially could change employment are absorbed by wage changes. Empirical tests of the persistency hypothesis fail to distinguish between the properties of shocks and endogenous propagation mechanism causing persistency. This paper develops a new test strategy by explicitly distinguishing between these two factors. The methodology is applied to the manufacturing sector in Denmark, and some support in favor of an endogenous propagation mechanism causing employment persistency is found.

Keywords

Insider-Outsider ModelWage Employment Error Correction Model
Type
Research Article
Information
Macroeconomic Dynamics , Volume 2 , Issue 4 , December 1998 , pp. 472 - 491
Copyright
© 1998 Cambridge University Press

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