Essays on Macroeconomics: Wage Rigidity and Aggregate Fluctuations

Sammanfattning: Essay I: I use Swedish micro data to analyze how firms adjusted their labor costs in response to the large drop in aggregate demand during the Great Recession. For identification, I exploit that the recession primarily hit export-dependent firms in Sweden. Using this variation, I show that exposed firms were able to reduce the rate of wage increases by a magnitude in line with existing micro-evidence of co-movements between individual firms' profits and their workers' wages. However, the dominant part of labor cost adjustments originated in net employment reductions, through separations to unemployment. For workers, the main source of earnings losses was therefore not reductions in wages but an increased rate of job-separations to unemployment. These results highlight separations into unemployment as a channel of adjustment and suggest that wage rigidity of incumbent workers contributes to fluctuations in unemployment and earnings. Further, using the timing and information in wage-setting agreements, I illustrate a dependence between workers’ outcomes on wages versus separations that relates directly to institutional wage rigidity.Essay II (with Mikael Carlsson and Oskar Nordström Skans): We study the importance of wage rigidities for the monetary policy transmission mechanism. Using rich micro data on Swedish wage negotiations, we isolate periods when the labor market is covered by fixed wage contracts. Importantly, negotiations are coordinated in time but their seasonal patterns are far from deterministic. Using a two-regime VAR model, we document that monetary policy shocks have a larger impact on production during fixed wage episodes as compared to the average response. The results do not seem to be driven by the periodic structure, nor the seasonality, of the renegotiation episodes.Essay III: Where do business cycles originate? The traditional view is that a business cycle is the result of shocks correlated across sectors. This view is complemented by a recently emerging literature showing that idiosyncratic shocks to large or highly interconnected sectors contribute to aggregate variation. This essay addresses the relative empirical importance of these two channels of business cycle variation. Based on a frictional network-model à la Acemoglu et al. (2012), I derive an influence vector for empirical aggregation and evaluation. Further, by decomposing this vector I identify the elements that drive the amplification. Results demonstrate that up to one-third of the business cycle is driven by idiosyncratic productivity variation together with network amplifications.