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Non-Walrasian Unemployment Fluctuations

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  • Jordi Gali

Abstract

We modify the standard real business cycle model by assuming that wages are set by a monopoly union at the firm level. In the context of such a model, we introduce a measure of unemployment and analyze its equilibrium behavior. We show that a calibrated version of the model is capable of generating both a procyclical labor supply and a countercyclical unemployment rate, in a way qualitatively consistent with the evidence. The model stresses the role of countercyclical markups in the goods market as a key mechanism underlying the countercyclical behavior of unemployment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5337.

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Date of creation: Nov 1995
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Handle: RePEc:nbr:nberwo:5337

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  1. Campbell, John, 1994. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," Scholarly Articles 3196342, Harvard University Department of Economics.
  2. Jeremy Greenwood & Gregory W. Huffman, 1991. "Tax analysis in a real business cycle model: on measuring Harberger triangles and Okun gaps," Staff Report 138, Federal Reserve Bank of Minneapolis.
  3. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  4. Gali, J., 1991. "Monopolistic Competition, Business Cycles and the Composition of Aggregate Demand," Papers 92-03, Columbia - Graduate School of Business.
  5. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers 88-05, Rochester, Business - General.
  6. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  7. Greenwood, Jeremy & MacDonald, Glenn M & Zhang, Guang-Jia, 1996. "The Cyclical Behavior of Job Creation and Job Destruction: A Sectoral Model," Economic Theory, Springer, vol. 7(1), pages 95-112, January.
  8. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
  9. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  10. Michael Woodford, 1990. "Self-Fulfilling Expectations and Fluctuations in Aggregate Demand," NBER Working Papers 3361, National Bureau of Economic Research, Inc.
  11. Danthine, Jean Pierre & Donaldson, John B., 1992. "Risk sharing in the business cycle," European Economic Review, Elsevier, vol. 36(2-3), pages 468-475, April.
  12. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  13. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  14. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  15. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November.
  16. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  17. Satyajit Chatterjee & Russell W. Cooper, 1993. "Entry and exit, product variety and the business cycle," Working Papers 93-30, Federal Reserve Bank of Philadelphia.
  18. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  19. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
  20. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  21. Jovanovic, Boyan, 1987. "Work, Rest, and Search: Unemployment, Turnover, and the Cycle," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 131-48, April.
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Citations

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Cited by:
  1. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA).
  2. Christian Haefke & Monique Ebell, 2004. "The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle," 2004 Meeting Papers 759, Society for Economic Dynamics.
  3. John Kennan, 2001. "Uniqueness of Positive Fixed Points for Increasing Concave Functions on Rn: An Elementary Result," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 893-899, October.
  4. Erkki Koskela & Leopold von Thadden, 2003. "Optimal Factor Taxation under Wage Bargaining - A Dynamic Perspective," CESifo Working Paper Series 836, CESifo Group Munich.
  5. Marco Maffezzoli, 2000. "Non-Walrasian Labor Markets and Real Business Cycles," Macroeconomics 0004009, EconWPA.
  6. Schaik, A.B.T.M. van & Groot, H.L.F. de, 2000. "Unemployment, growth and efficiency wages," Open Access publications from Tilburg University urn:nbn:nl:ui:12-83963, Tilburg University.
  7. Weder, Mark, 1997. "Animal spirits, technology shocks and the business cycle," SFB 373 Discussion Papers 1997,61, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  8. Henri L.F. de Groot & Anton B.T.M. van Schaik, 2002. "Unemployment, Growth and the Organisation of Work," Tinbergen Institute Discussion Papers 02-017/3, Tinbergen Institute.
  9. Meckl, Jurgen, 2004. "Accumulation of technological knowledge, wage differentials, and unemployment," Journal of Macroeconomics, Elsevier, vol. 26(1), pages 65-82, March.
  10. Huw D. Dixon, . "Modelling Market Power in Labour and Product Markets in a Dynamic Economy," Discussion Papers 00/20, Department of Economics, University of York.
  11. repec:dgr:uvatin:2002017 is not listed on IDEAS
  12. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
  13. Cook, David, 2002. "Market entry and international propagation of business cycles," Journal of International Economics, Elsevier, vol. 56(1), pages 155-175, January.
  14. Ebell, Monique & Haefke, Christian, 2003. "Product Market Deregulation and Labor Market Outcomes," IZA Discussion Papers 957, Institute for the Study of Labor (IZA).
  15. Koskela, Erkki & von Thadden, Leopold, 2002. "Optimal factor taxation under wage bargaining: a dynamic perspective," Discussion Paper Series 1: Economic Studies 2002,31, Deutsche Bundesbank, Research Centre.
  16. Fabio Canova & Eva Ortega, 1996. "Testing calibrated general equilibrium models," Economics Working Papers 166, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Erkki Koskela & Leopold von Thadden, 2008. "Optimal Factor Taxation under Wage Bargaining: A Dynamic Perspective," German Economic Review, Verein für Socialpolitik, vol. 9, pages 135-159, 05.

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