New Keynesian Perspectives on Labor Market Dynamics

We nd that search and matching frictions can generate an important part of the observed business-cycle uctuations in unemployment and job vacancies in response to supply and demand shocks of a plausible magnitude. This is shown in the context of a model where \u85rms with market power are assumed to post sticky prices taking as given a bargained wage schedule. We also show that the solution to the remaining labor market puzzle is not real wage rigidity à la Hall (2005). Finally, we argue that the features proposed by Rotemberg (2006), namely economies of scale in the technology of vacancy posting and exogenous markup shocks share essentially the same problems and promises as in his exible price model. Prepared for the Carnegie-Rochester Conference Series on Public Policy Labor Markets, Macroeconomic Fluctuations, and Monetary Policy to be held at Carnegie Mellon Universit