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Strategic wage bargaining, labor market volatility, and persistence

  • Hertweck Matthias Sebastian

    ()

    (University of Konstanz, Department of Economics, Box 145, 78457 Konstanz, Germany)

The textbook search and matching model suffers from too little amplification and weak internal propagation. We argue that the double failure is due to two negative feedback channels. Intuitively, a decline (rise) in unemployment (vacancies) rises both the wage rate, the “wage channel,” and the effective cost to fill a vacancy, the “hiring cost channel.” Therefore, we introduce hiring costs and strategic wage bargaining. The interaction between these two modifications limits the impact of both channels effectively and persistently. Thus, the modified model is able to closely match the (inversely) u-shaped impulse responses of vacancies and unemployment.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 13 (2013)
Issue (Month): 1 (October)
Pages: 27

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Handle: RePEc:bpj:bejmac:v:13:y:2013:i:1:p:27:n:22
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