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Matching labor’s share in a search and matching model

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  • Claire A. Reicher

    (Kiel Institute for the World Economy)

Abstract

Labor’s share of income varies over the business cycle, and different theories of nominal rigidities predict different behaviors for labor’s share. Based on evidence from a VAR for the USA, labor’s share falls sharply after a positive productivity shock and does not necessarily “overshoot” its trend; labor’s share rises after a contractionary monetary policy shock; and labor’s share falls gradually after a positive shock to the unemployment rate. A search and matching model with sticky nominal wages but flexible prices can match all three facts. In contrast, a model with flexible nominal wages and flexible prices does not match the first two facts, and a model with flexible nominal wages but sticky prices does not match the second fact. Furthermore, it is difficult to distinguish between a model where the wages of new hires are sticky from one in which they are flexible based purely on macro data.

Suggested Citation

  • Claire A. Reicher, 2016. "Matching labor’s share in a search and matching model," Empirical Economics, Springer, vol. 50(4), pages 1229-1254, June.
    • Handle: RePEc:spr:empeco:v:50:y:2016:i:4:d:10.1007_s00181-015-0985-0
    DOI: 10.1007/s00181-015-0985-0
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    More about this item

    Keywords

    Sticky wages; Sticky prices; Labor’s share; Staggered Nash bargaining; Search and matching;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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