New-Keynesian Model Reveals Wage-Push Shocks Drive Unemployment Fluctuations
The article introduces wage stickiness in a New-Keynesian model to explain fluctuations in unemployment. The researchers found that wage stickiness leads to mismatches between labor supply and demand, affecting the U.S. economy in several ways: the likelihood of wages staying the same increases, labor supply becomes less responsive, unemployment rate patterns match real data, and unemployment fluctuations are mainly driven by wage-push shocks, demand changes, and monetary policy shifts.