Wages and Employment in a Repeated Game with Revenue Fluctuations
This paper analyses wages and employment in a repeated game between a union and a firm. The parties cannot enter a binding contract, and revenue is fluctuating. It is shown that if discount factors are moderate, then the best sequence of wage rates and employments sustainable in a subgame perfect equilibrium and sharing the surplus in fixed proportions, has a more counter cyclical wage rate than the one sharing the surplus in the same proportions in each period. This result holds true whether the revenue shocks are i.i.d. or follows a Markov process with persistence.
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| Length: | 22 pages |
| Date of creation: | Jan 1995 |
| Date of revision: | |
| Publication status: | Published in: European Economic Review, 1997, 41(1) pp 147-62 |
| Handle: | RePEc:kud:kuiedp:9501 |
| Contact details of provider: | Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark Phone: (+45) 35 32 30 10 Fax: +45 35 32 30 00 Web page: http://www.econ.ku.dk Email: More information through EDIRC
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Julio J. Rotemberg & Michael Woodford, 1989.
"Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity,"
NBER Working Papers
3206, National Bureau of Economic Research, Inc.
- Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
- Michihiro Kandori, 1991. "Correlated Demand Shocks and Price Wars During Booms," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 171-180.
- Farrell, Joseph & Maskin, Eric, 1989.
"Renegotiation in repeated games,"
Games and Economic Behavior,
Elsevier, vol. 1(4), pages 327-360, December.
- Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.
- Farrell, Joseph & Maskin, Eric, 1987. "Renegotiation in Repeated Games," Department of Economics, Working Paper Series qt9wv3h5jb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
- Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 3-35.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991.
"Unemployment: Macroeconomic Performance and the Labour Market,"
OUP Catalogue,
Oxford University Press, number 9780198284345, December.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, December.
- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- Maria Paz Espinosa & Changyong Rhee, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 565-588.
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