Abstract :
Realwagerigiditiescausejoblessrecoveries.Supposethataone-timeshockreducesthe
capitalstockbelowtrend.Ifwagesareflexible,theydeclineandemploymentincreasesat
the momentoftheshock,beforebothrevertbacktonormallevelsastheeconomygrows
back totrend.Ifwagesarecompletelyrigidandthelabormarketisotherwise
frictionless,theshockcausesaproportionalandpermanentdeclineinemployment,
capital,output,consumption,andinvestmentrelativetotrend.Inasearchmodelwith
rigid wages,theshockcausesapersistentbutnotpermanentdeclineintheseeconomic
outcomes,ajoblessrecovery
