Unemployment volatility in a generalized staggered Nash wage bargaining framework

Abstract Micro evidence on wages suggests that there is heterogeneity across wage contract durations. While, on average, wages are sticky, a non‐negligible proportion of wages are flexible. I generalize the Gertler and Trigari model to match this heterogeneity and show that the new model closely matches observed unemployment volatility. This finding deviates from the literature proposing an alternative calibration of the standard model and arguing that large unemployment fluctuations require a small surplus from an employment relationship. However, in the multi‐sector model I present, unemployment volatility arises even with the standard calibration, where the surplus is relatively large.