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Flexibility of new hires’ earnings in Ireland

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  • Lydon, Reamonn
  • Lozej, Matija

Abstract

The rigidity of the net present value of wages for newly hired workers from unemployment is one of the key ingredients to generate realistic volatility of (un)employment in standard search and matching models. With Nash bargaining or if wage contracts are long-term, this net present value is affected by wages of new hires. Yet data on wages of new hires are rare and, in the few papers that distinguish between new hires from unemployment and job changers, the findings vary. For the U.S., two influential papers reach the opposite conclusions, and the findings for the few European countries are mixed. We combine administrative tax data on earnings with the Household Finance and Consumption Survey for Ireland and find that earnings of new hires from non-employment are substantially more flexible compared to earnings of incumbent workers or job changers. The findings are robust. Earnings of new hires from non-employment are more procyclical for workers with less valuable outside options.

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  • Lydon, Reamonn & Lozej, Matija, 2018. "Flexibility of new hires’ earnings in Ireland," Labour Economics, Elsevier, vol. 53(C), pages 112-127.
    • Handle: RePEc:eee:labeco:v:53:y:2018:i:c:p:112-127
    DOI: 10.1016/j.labeco.2018.05.013
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    Cited by:

    1. Garcia, Pablo & Jacquinot, Pascal & Lenarčič, Črt & Lozej, Matija & Mavromatis, Kostas, 2023. "Global models for a global pandemic: The impact of COVID-19 on small euro area economies," Journal of Macroeconomics, Elsevier, vol. 77(C).
    2. Lozej, Matija, 2019. "Economic migration and business cycles in a small open economy with matching frictions," Economic Modelling, Elsevier, vol. 81(C), pages 604-620.
    3. Byrne, Stephen & McIndoe-Calder, Tara, 2019. "Employment Growth: Where Do We Go From Here?," Quarterly Bulletin Articles, Central Bank of Ireland, pages 122-148, July.
    4. Lydon, Reamonn & McIndoe-Calder, Tara, 2017. "The Great Irish (De)Leveraging 2005-14," Research Technical Papers 05/RT/17, Central Bank of Ireland.
    5. Matthew Knowles & Mario Lupoli, 2023. "The Nash Wage Elasticity and its Business Cycle Implications," ECONtribute Discussion Papers Series 240, University of Bonn and University of Cologne, Germany.
    6. Le Blanc, Julia & Lydon, Reamonn, 2019. "Indebtedness and spending: What happens when the music stops?," Research Technical Papers 14/RT/19, Central Bank of Ireland.
    7. Albagli, Elías & Contreras, Gabriela & Tapia, Matías & Wlasiuk, Juan M., 2022. "Earnings cyclicality of new and continuing jobs: The role of tenure and transition length," Labour Economics, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Wage bargaining; Wage rigidity; Unemployment; New employees; Business cycles;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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