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Bargaining, Aggregate Demand and Employment

  • Charpe, Matthieu
  • Kühn, Stefan

This paper depicts the negative impact of a falling real wage caused by reduced bargaining power of workers on aggregate demand and employment. Contrary to standard New Keynesian models, the presence of consumers not participating in financial markets (rule of thumb consumers) causes an immediate negative response of output and employment, which is amplified when the economy faces a lower bound on the nominal interest rate. Additionally, the paper shows that by supporting consumption demand, minimum wages might enhance output and employment.

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Paper provided by CEPREMAP in its series Dynare Working Papers with number 13.

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Length: 31 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cpm:dynare:013
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  1. Christoffel, Kai & Kuester, Keith & Linzert, Tobias, 2009. "The role of labor markets for euro area monetary policy," European Economic Review, Elsevier, vol. 53(8), pages 908-936, November.
  2. Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers 1958, C.E.P.R. Discussion Papers.
  3. N. Gregory Mankiw, 1999. "The Savers-Spenders Theory of Fiscal Policy," Harvard Institute of Economic Research Working Papers 1888, Harvard - Institute of Economic Research.
  4. Ravenna, Federico & Walsh, Carl E., 2008. "Vacancies, unemployment, and the Phillips curve," European Economic Review, Elsevier, vol. 52(8), pages 1494-1521, November.
  5. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  6. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Cogan, John F. & Cwik, Tobias J. & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CFS Working Paper Series 2009/17, Center for Financial Studies (CFS).
  8. Philippe Askenazy & Xavier Timbeau, 2003. "Partage de la valeur ajoutée et rentabilité du capital en France et aux États-Unis : une réévaluation ; suivi d'un commentaire de Xavier Timbeau," Économie et Statistique, Programme National Persée, vol. 363(1), pages 167-189.
  9. Nicholas Kaldor, 1955. "Alternative Theories of Distribution," Review of Economic Studies, Oxford University Press, vol. 23(2), pages 83-100.
  10. Morten O. Ravn & Saverio Simonelli, 2007. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," CSEF Working Papers 182, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-45, March.
  12. José Emilio Boscá & Rafael Domenech & Javier Ferri, 2009. "Search, Nash Bargaining and Rule of Thumb Consumers," Working Papers 0912, BBVA Bank, Economic Research Department.
  13. Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
  14. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Computing in Economics and Finance 2006 525, Society for Computational Economics.
  15. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE Models for Monetary Policy Analysis," NBER Working Papers 16074, National Bureau of Economic Research, Inc.
  16. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
  17. Tom Holden, 2010. "Products, patents and productivity persistence: A DSGE model of endogenous growth," Economics Series Working Papers 512, University of Oxford, Department of Economics.
  18. Alfonso Arpaia & Esther Pérez & Karl Pichelmann, 2009. "Understanding Labour Income Share Dynamics in Europe," European Economy - Economic Papers 379, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  19. Anthony Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Post-Print halshs-00754557, HAL.
  20. Young, Andrew T., 2010. "One of the things we know that ain't so: Is US labor's share relatively stable?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 90-102, March.
  21. Sala, Luca & Söderström, Ulf & Trigari, Antonella, 2008. "Monetary policy under uncertainty in an estimated model with labor market frictions," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 983-1006, July.
  22. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  23. Christoffel, Kai & Kuester, Keith & Linzert, Tobias, 2009. "The role of labor markets for euro area monetary policy," Kiel Working Papers 1513, Kiel Institute for the World Economy (IfW).
  24. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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