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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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    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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