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Matching, Bargaining, And Wage Setting In An Evolutionary Model Of Labor Market And Output Dynamics

In: Industry And Labor Dynamics The Agent-Based Computational Economics Approach

Author

Listed:
  • G. FAGIOLO

    (Sant’Anna School of Advanced Studies, Laboratory of Economics and Management, Italy)

  • G. DOSI

    (Sant’Anna School of Advanced Studies, Laboratory of Economics and Management, Italy)

  • R. GABRIELE

    (Sant’Anna School of Advanced Studies, Laboratory of Economics and Management, Italy and D.I.S.A., University of Trento, Italy)

Abstract

In this paper, we present an agent-based, evolutionary, model of output- and labor-market dynamics. Firms produce a homogeneous, perishable, good under constant returns to scale using labor only. Labor productivities are firm-specific and change stochastically due to technical progress. The key feature of the model resides in an explicit microfoundation of the processes of: (i) matching between firms and workers; (ii) workers search; (iii) wage setting; (iv) endogenous formation of aggregate demand; (v) endogenous price formation. Moreover, we allow for a competitive process entailing selection of firms on the basis of their revealed competitiveness. Simulations show that the model is able to robustly reproduce Beveridge, Wage and Okun’s curves under quite broad behavioral and institutional settings. The system generates endogenously an Okun’s coefficient greater than one even if individual firms employ production functions exhibiting constant returns to labor. Montecarlo simulations also indicate that statistically detectable shifts in Okun’s and Beveridge curves emerge as the result of changes in institutional, behavioral, and technological parameters, Finally, the model generates sharp predictions about how system parameters affect aggregate performance (i.e. average GDP growth) and its volatility.

Suggested Citation

  • G. Fagiolo & G. Dosi & R. Gabriele, 2004. "Matching, Bargaining, And Wage Setting In An Evolutionary Model Of Labor Market And Output Dynamics," World Scientific Book Chapters, in: Roberto Leombruni & Matteo Richiardi (ed.), Industry And Labor Dynamics The Agent-Based Computational Economics Approach, chapter 5, pages 59-89, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789812702258_0005
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    References listed on IDEAS

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    1. Nickell, Stephen & Nunziata, Luca & Ochel, Wolfgang & Quintini, Glenda, 2001. "The Beveridge curve, unemployment and wages in the OECD from the 1960s to the 1990s - preliminary version," LSE Research Online Documents on Economics 20113, London School of Economics and Political Science, LSE Library.
    2. ., 1994. "Evolution, Formal Models of Economic," Chapters, in: Geoffrey M. Hodgson & Warren J. Samuels & Marc R. Tool (ed.), The Elgar Companion to Institutional and Evolutionary Economics, volume 0, chapter 40, Edward Elgar Publishing.
    3. Forni, Mario & Lippi, Marco, 1997. "Aggregation and the Microfoundations of Dynamic Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198288008.
    4. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-1043, September.
    5. Frank Hahn & Robert Solow, 1997. "A Critical Essay on Modern Macroeconomic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258154x, December.
    6. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, December.
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    More about this item

    Keywords

    Simulation; Agent-Based; Computational Economics; Labor; Industrial Dynamics; Innovation; Cluster; Firm Behavior;
    All these keywords.

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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