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Matching labor’s share in a search and matching model

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  • Christopher Reicher

Abstract

I evaluate the degree to which different wage-setting mechanisms in labor market search models can fit the aggregate facts on labor’s share. I find that staggered bargaining in nominal wages best allows the model to plausibly match the negative relationship between labor’s share and lagged productivity growth and inflation. I also evaluate the role of labor’s bargaining weight—a low bargaining weight seems plausible but by itself, it cannot generate the patterns observed in the data. Adding a standard sticky-price mechanism to the model actually degrades the match between the model and the data—in the data, labor’s share is countercyclical, while it is procyclical in the sticky-price model. Theory and data both agree that wage stickiness is relevant at the micro and macro levels

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File URL: https://www.ifw-members.ifw-kiel.de/publications/matching-labor2019s-share-in-a-search-and-matching-model/matching-labor-s-share-in-a-search-and-matching-model.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1733.

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Length: 35 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:kie:kieliw:1733

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Related research

Keywords: Sticky wages; sticky prices; staggered Nash bargaining; inflation; productivity; search and matching; labor’s share;

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  1. John H. Cochrane, 2011. "Determinacy and Identification with Taylor Rules," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 119(3), pages 565 - 615.
  2. Alessandro Barattieri & Susanto Basu & Peter Gottschalk, 2010. "Some Evidence on the Importance of Sticky Wages," Boston College Working Papers in Economics, Boston College Department of Economics 740, Boston College Department of Economics.
  3. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series, European Central Bank 0853, European Central Bank.
  4. Luca Sala & Antonella Trigari & Mark Gertler, 2007. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," 2007 Meeting Papers, Society for Economic Dynamics 353, Society for Economic Dynamics.
  5. Enchuan Shao & Pedro Silos, 2014. "Accounting For The Cyclical Dynamics Of Income Shares," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 52(2), pages 778-795, 04.
  6. Paul Gomme & Jeremy Greenwood, 1992. "On the cyclical allocation of risk," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 71, Federal Reserve Bank of Minneapolis.
  7. Yashiv, Eran, 2006. "Evaluating the Performance of the Search and Matching Model," IZA Discussion Papers 1931, Institute for the Study of Labor (IZA).
  8. Jean-Olivier Hairault, 2002. "Labor-Market Search and International Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 535-558, July.
  9. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
  10. 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.
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