Macroeconomics Commons^™

Employment Fluctuations With Downward Wage Rigidity: The Role Of Worker Moral Hazard, Marcel Jansen, Jim Costain

Marcel Jansen

This paper studies the cyclical dynamics of Mortensen and Pissarides' (1994) model of job creation and destruction when workers' effort is not perfectly observable, as in Shapiro and Stiglitz (1984). An occasionally-binding no-shirking constraint truncates the real wage distribution from below, making firms' share of surplus weakly procyclical, and may thus amplify fluctuations in hiring. It may also cause a burst of inefficient firing at the onset of a recession, separating matches that no longer have sufficient surplus for incentive compatibility.

On the other hand, since marginal workers in booms know firms cannot commit to keep them in recessions, they …

Job Auctions And Hold-Ups, Marcel Jansen

Marcel Jansen

We consider a labor market with search frictions in which firms need to invest in capital before they can post a vacancy. This assumption creates a natural scope for hold-up problems, but the innovation of our study is that we allow for competition among the applicants who apply for the same job. In our economy all applicants are paid their actual marginal product. Nonetheless, with random search there exists a hold-up problem, leading to underinvestment in capital. On the contrary, if workers can direct their search towards firms with different capital levels, the equilibrium is efficient. This result contrasts sharply …