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Firm Entry, Endogenous Markups and the Dynamics of the Labor Share

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Author Info

  • Andrea Colciago

    (Department of Economics, University of Milano Bicocca)

  • Lorenza Rossi

    ()
    (Department of Economics and Quantitative Methods, University of Pavia)

Abstract

Recent U.S. evidence suggests that the response of the labor share to a productivity shock is characterized by countercyclicality and overshooting. These findings cannot be easily reconciled with existing business cycle models. We extend the standard model of search and matching in the labor market by considering strategic interactions among an endogenous number of producers. This leads to countercyclical price markups. While Nash bargaining is sufficient to capture the labor share countercyclicality, we show that countercyclical markups are key to address the overshooting.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q168.pdf
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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 168.

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Length: 14 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:pav:wpaper:168

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Related research

Keywords: Endogenous Market Structures; Oligopolistic Competition; Firms' Entry; Search and Matching Frictions; Labor Share Overshooting.;

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