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Cyclical Wages in a Search-and-Bargaining Model with Large Firms

In: NBER International Seminar on Macroeconomics 2006

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  • Julio J. Rotemberg

Abstract

This paper presents a complete general equilibrium model with flexible wages where the degree to which wages and productivity change when cyclical employment changes is roughly consistent with postwar U.S. data. Firms with market power are assumed to bargain simultaneously with many employees, each of whom finds himself matched with a firm only after a process of search. When employment increases as a result of reductions in market power, the marginal product of labor falls. This fall tempers the bargaining power of workers and thus dampens the increase in their real wages. The procyclical movement of wages is dampened further if the posting of vacancies is subject to increasing returns.

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This chapter was published in:

  • Lucrezia Reichlin & Kenneth West, 2008. "NBER International Seminar on Macroeconomics 2006," NBER Books, National Bureau of Economic Research, Inc, number reic08-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7035.

    Handle: RePEc:nbr:nberch:7035

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    1. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1653-74, September.
    2. Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Deep Habits," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4269, C.E.P.R. Discussion Papers.
    3. Yashiv, Eran, 2006. "Evaluating the performance of the search and matching model," European Economic Review, Elsevier, Elsevier, vol. 50(4), pages 909-936, May.
    4. Chéron, A. & Langot, François, 1999. "The Phillips and Beveridge curves revisited," CEPREMAP Working Papers (Couverture Orange) 9905, CEPREMAP.
    5. Francis Kramarz & Marie-Laure Michaud, 2002. "The Shape of Hiring and Separation Costs," Working Papers, Centre de Recherche en Economie et Statistique 2002-38, Centre de Recherche en Economie et Statistique.
    6. Carl E. Walsh, 2005. "Labor Market Search, Sticky Prices, and Interest Rate Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 829-849, October.
    7. Antonella Trigari, 2009. "Equilibrium Unemployment, Job Flows, and Inflation Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(1), pages 1-33, 02.
    8. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5363, C.E.P.R. Discussion Papers.
    9. Krause, M.U. & Lubik, T.A., 2003. "The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions," Discussion Paper, Tilburg University, Center for Economic Research 2003-113, Tilburg University, Center for Economic Research.
    10. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(5), pages 921-47, October.
    11. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
    12. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
    13. Katharine G. Abraham, 1987. "Help-Wanted Advertising, Job Vacancies, and Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 207-248.
    14. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
    15. Cahuc, Pierre & Wasmer, Etienne, 2001. "Does Intrafirm Bargaining Matter In The Large Firm'S Matching Model?," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 5(05), pages 742-747, November.
    16. Collard, Fabrice & Juillard, Michel, 2001. "A Higher-Order Taylor Expansion Approach to Simulation of Stochastic Forward-Looking Models with an Application to a Nonlinear Phillips Curve Model," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 17(2-3), pages 125-39, June.
    17. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 112-32, March.
    18. Eran Yashiv, 2005. "Evaluating the performance of the search and matching model," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19906, London School of Economics and Political Science, LSE Library.
    19. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
    20. Julio J. Rotemberg, 1998. "Cyclical Movements in Wages and Consumption in a Bargaining Model of Unemployment," NBER Working Papers 6445, National Bureau of Economic Research, Inc.
    21. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
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    23. repec:cup:macdyn:v:5:y:2002:i:05:p:742-747_03 is not listed on IDEAS
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