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Sequential Bargaining in a Neo-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiations

Author

Listed:
  • Gregory De Walque
  • Olivier Pierrard
  • Henri Sneessens
  • Raf Wouters

Abstract

We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers' bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers' bargaining power for wages and (iii) the more important the hourly wage in the marginal cost determination. This set-up produces realistic labor market statistics together with inflation persistence. Distinguishing the probability to bargain the wage of the existing and the new jobs, we show that the intensive margin helps reduce the new entrants wage rigidity required to match observed unemployment volatility.

Suggested Citation

  • Gregory De Walque & Olivier Pierrard & Henri Sneessens & Raf Wouters, 2009. "Sequential Bargaining in a Neo-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiations," Annals of Economics and Statistics, GENES, issue 95-96, pages 223-250.
    • Handle: RePEc:adr:anecst:y:2009:i:95-96:p:223-250
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    Cited by:

    1. Galuscak, Kamil & Keeney, Mary & Nicolitsas, Daphne & Smets, Frank & Strzelecki, Pawel & Vodopivec, Matija, 2012. "The determination of wages of newly hired employees: Survey evidence on internal versus external factors," Labour Economics, Elsevier, vol. 19(5), pages 802-812.
    2. Stähler, Nikolai & Thomas, Carlos, 2012. "FiMod — A DSGE model for fiscal policy simulations," Economic Modelling, Elsevier, vol. 29(2), pages 239-261.
    3. Hajdini, Ina & Knotek, Edward & Leer, John & Pedemonte, Mathieu & Rich, Robert & Schoenle, Raphael, 2022. "Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation," CEPR Discussion Papers 17356, Centre for Economic Policy Research.
    4. Dieppe, Alistair & González Pandiella, Alberto & Willman, Alpo, 2012. "The ECB's New Multi-Country Model for the euro area: NMCM — Simulated with rational expectations," Economic Modelling, Elsevier, vol. 29(6), pages 2597-2614.
    5. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
    6. Aurelijus Dabu�inskas & Tairi Room, 2011. "Survey evidence on wage and price setting in Estonia," Bank of Estonia Working Papers wp2011-06, Bank of Estonia, revised 27 May 2011.
    7. Gadatsch, Niklas & Stähler, Nikolai & Weigert, Benjamin, 2016. "German labor market and fiscal reforms 1999–2008: Can they be blamed for intra-euro area imbalances?," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 307-324.
    8. Tim Schwarzmüller & Nikolai Stähler, 2013. "Reforming the labor market and improving competitiveness: an analysis for Spain using FiMod," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(4), pages 437-471, November.
    9. Jan Babecky & Philip Du Caju & Kamil Dybczak & Kamil Galuscak & Mary Keeney & Theodora Kosma & Martina Lawless & Julian Messina & Daphne Nicolitsas & Tairi Room & Frank Smets & Pawel Strzelecki & Mati, 2010. "CNB Economic Research Bulletin: Wage Adjustment in Europe," Occasional Publications - Edited Volumes, Czech National Bank, Research and Statistics Department, edition 2, volume 8, number rb08/2 edited by Jan Babecky & Kamil Galuscak.
    10. Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek, 2015. "Labour Market Modelling within a DSGE Approach," Working Papers 2015/06, Czech National Bank, Research and Statistics Department.
    11. G. de Walque & M. Druant & Ph. Du Caju & C. Fuss, 2010. "Lessons of the Wage Dynamics Network," Economic Review, National Bank of Belgium, issue i, pages 55-75, June.
    12. Eric French & Elaine Kelly & Gerhard Kempkes & Nikolai Stähler, 2016. "A One‐Off Wealth Levy? Assessing the Pros and Cons and the Importance of Credibility," Fiscal Studies, Institute for Fiscal Studies, vol. 37, pages 821-849, September.
    13. Gomes, Sandra & Jacquinot, Pascal & Lozej, Matija, 2023. "A single monetary policy for heterogeneous labour markets: the case of the euro area," Research Technical Papers 3/RT/23, Central Bank of Ireland.
    14. Budnik, Katarzyna, 2026. "European temporary migration in a two country DSGE model," Working Paper Series 3226, European Central Bank.
    15. Mathä, Thomas Y. & Pierrard, Olivier, 2011. "Search in the product market and the real business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1172-1191, August.
    16. Been-Lon Chen & Chih-Fang Lai, 2016. "Relative effects of labor taxes on employment and working hours: role of mechanisms shaping working hours," Journal of Economics, Springer, vol. 117(1), pages 49-84, January.
    17. de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Aging and pensions in general equilibrium: Labor market imperfections matter," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 104-124.
    18. repec:cup:macdyn:v:29:y:2025:i::p:-_111 is not listed on IDEAS
    19. Alon Binyamini, 2013. "Labor Market Frictions and Optimal Monetary Policy," Bank of Israel Working Papers 2013.02, Bank of Israel.
    20. Stähler, Nikolai, 2019. "Who benefits from using property taxes to finance a labor tax wedge reduction?," Journal of Housing Economics, Elsevier, vol. 46(C).
    21. Jovanovic, Branimir & Petreski, Marjan, 2014. "Monetary policy, exchange rates and labor unions in SEE and the CIS during the financial crisis," Economic Systems, Elsevier, vol. 38(3), pages 309-332.
    22. Consolo, Agostino & Hertweck, Matthias S., 2010. "Shocks and frictions under right-to-manage wage bargaining: a transatlantic perspective," Working papers 2010/01, Faculty of Business and Economics - University of Basel.
    23. Mayer, Eric & Moyen, Stéphane & Stähler, Nikolai, 2010. "Government expenditures and unemployment: A DSGE perspective," Discussion Paper Series 1: Economic Studies 2010,18, Deutsche Bundesbank.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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