Using matched data on product-level prices and the producing firm's unit labor cost, we find a moderate pass-through of current idiosyncratic marginal-cost changes. Also, the response does not vary across firms facing very different idiosyncratic shock variances, but identical aggregate conditions. These results do not fit the predictions of Mackowiak and Wiederholt (2009). Neither do firms react strongly to predictable marginal-cost changes, as expected from Mankiw and Reis (2002). We find that firms consider both current and expected future marginal cost when setting prices. This points toward impediments to continuous price adjustments as a key driver of monetary non-neutrality.

We examine the impact of mismatch on entry wages, separations, and wage growth using unique data on worker talents. We show that workers are sorted on comparative advantage across jobs within occupations. The starting wages of inexperienced workers are unrelated to mismatch. For experienced workers, on the other hand, mismatch is negatively priced into their starting wages. Separations and wage growth are more strongly related to mismatch among inexperienced workers than among experienced workers. These findings are consistent with models of information updating, where less information is available about the quality of matches involving inexperienced workers.