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Strategic Wage Bargaining, Labor Market Volatility, and Persistence

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  • Matthias S. Hertweck

    ()
    (Department of Economics, University of Konstanz, Germany)

Abstract

This paper modifies the standard Mortensen-Pissarides model in order to explain the cyclical behavior of vacancies and unemployment. The modifications include strategic wage bargaining and convex labor adjustment costs. We find that this setup replicates the cyclical behavior of both labor market variables remarkably well. First, we show that the model with strategic wage bargaining matches closely the volatility of vacancies and unemployment. Second, the introduction of convex labor adjustment costs makes both variables much more persistent. Third, our analysis indicates that these two modifications are complementary in generating labor market volatility and persistence.

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Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-26.

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Length: 42 pages
Date of creation: 15 Jul 2011
Date of revision:
Handle: RePEc:knz:dpteco:1126

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Related research

Keywords: Business Cycles; Matching; Strategic Bargaining; Vacancy Persistence;

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References

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Citations

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Cited by:
  1. Faccini, Renato & Rosazza Bondibene, Chiara, 2012. "Labour market institutions and unemployment volatility: evidence from OECD countries," Bank of England working papers 461, Bank of England.
  2. di Pace, Federico & Faccini, Renato, 2010. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Bank of England working papers 391, Bank of England.
  3. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2013. "Unemployment and business cycles," International Finance Discussion Papers 1089, Board of Governors of the Federal Reserve System (U.S.).

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