Working Papers

Employment Variation and Wage Rigidity

A Comparison of Union and Non-Union Plants


The unionized sector is often thought of as the dominant focus of wage rigidity and hence employment instability in Keynesian models that attribute unemployment to rigid wages. Where the price mechanism is frozen, quantity changes are amplified. This paper compares intertemporal employment variability during the 1970’s at union and non-union plants, and finds no greater cyclical or residual employment variation in union than in non-union plants.