Professor Dan Tortorice's recent paper in the Journal of Macroeconomics examines the causes of unemployment fluctuations. Previous models of unemployment fluctuations focused mainly on one channel of unemployment fluctuations. Either they focused on inflow to unemployment, workers losing their jobs. Or they focused on outflow from unemployment, workers finding jobs. Prof. Tortorice's work combines these two channels into one model and evaluates the importance of wage rigidity in contributing to unemployment.
He finds that lack of wage adjustment is necessary to explain unemployment fluctuations. However, the amount of wage rigidity needed is similar to what is observed in the real world. Empirically then, wage rigidity is a reasonable explanation for why firms are slow to hire after recessions. Wages are simply too high for firms to want to hire many workers. The paper is available online .