The Limited Influence of Unemployment on the Wage Bargain
When a job-seeker and an employer meet, find a prospective joint surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may have limited influence. The job-seeker's only credible threat during bargaining is to hold out for a better deal. The employer's threat is to delay bargaining. Consequently, the outcome of the bargain depends on the relative costs of delays to the parties, rather than on the payoffs that result from exiting negotiations. Modeling bargaining in this way makes wages less responsive to unemployment. A stochastic model of the labor market with credible bargaining and reasonable parameter values yields larger employment fluctuations than does the standard Mortensen-Pissarides model. (JEL J22, J23, J31, J64)
Volume (Year): 98 (2008)
Issue (Month): 4 (September)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
- Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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