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Flexibility of new hires’ earnings during a recession

The evolution of earnings over the business cycle has important implications for consumption and welfare. This column shows that the earnings of new hires in Ireland – and in particular, new hires with less valuable outside options – are substantially more flexible than those of incumbents during a recession. The results indicate that search and matching models that rely on the rigidity of wages of new hires to generate realistic volatility in job creation and unemployment may not be appropriate for strong business cycles.
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