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Strategic Wage Bargaining, Labor Market Volatility, and Persistence

  • Matthias S. Hertweck


    (Department of Economics, University of Konstanz, Germany)

This paper modifies the standard Mortensen-Pissarides model in order to explain the cyclical behavior of vacancies and unemployment. The modifications include strategic wage bargaining and convex labor adjustment costs. We find that this setup replicates the cyclical behavior of both labor market variables remarkably well. First, we show that the model with strategic wage bargaining matches closely the volatility of vacancies and unemployment. Second, the introduction of convex labor adjustment costs makes both variables much more persistent. Third, our analysis indicates that these two modifications are complementary in generating labor market volatility and persistence.

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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-26.

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Length: 42 pages
Date of creation: 15 Jul 2011
Date of revision:
Handle: RePEc:knz:dpteco:1126
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  27. Arnaud Cheron & Francois Langot, 2004. "Labor Market Search and Real Business Cycles: Reconciling Nash Bargaining with the Real Wage Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 476-493, April.
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  29. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
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