Growth of wages, unemployment, employment and vacancies exhibit strong asymmetries
between expansionary and contractionary phases. This is also very apparent during the crisis
of 2008-2010 for European countries and the US. In this paper we analyze to what degree
downward wage rigidities in the bargaining process a¤ect other variables of the economy.
We introduce asymmetric adjustment costs in a New-Keynesian DSGE model with search
and matching frictions in the labor market. We …nd that the presence of downward wage
rigidities strongly improves the …t of the model to asymmetry measures, such as the skewness
and the relative length of expansionary and contractionary phases. Due to the asymmetry
wages increase more easily in expansions, limiting vacancy posting and dampening employ-
ment creation. The strongly increased labour costs transmit faster to in‡ation. Instead,
during contractions nominal wages decrease slowly, shifting the main burden of adjustment
to employment and hours worked, and part of the adjustment on prices. The introduced
asymmetry helps to explain the asymmetric business cycle of many OECD countries where
long and smooth expansions with low growth rates are followed by sharp but short recessions
with large negative growth rates.

JEL classification: E31; E52; C61.
Key words: labor market, unemployment, downward wage rigidity, asymmetric adjust-
ment costs, non-linear dynamics.