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The Cyclical Behaviour of Wages and Profits Under Imperfect Competition

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  • Cardia, E.
  • Ambler, S.

Abstract

The authors build a dynamic model of the business cycle with monopolistically competitive firms. With simple assumptions concerning firm entry and exit, the model can explain some stylized facts of the business cycle that standard real business cycle models cannot predict. They include the cyclical behavior of the shares of capital and labor income in total income and the pattern of net firm creation. These predictions are robust to whether the main source of the business cycle is aggregate supply shocks or aggregate demand shocks.
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Suggested Citation

  • Cardia, E. & Ambler, S., 1993. "The Cyclical Behaviour of Wages and Profits Under Imperfect Competition," Cahiers de recherche 9330, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    • Handle: RePEc:mtl:montec:9330
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    1. Ambler, Steven & Cardia, Emanuela & Phaneuf, Louis, 1992. "Contrats de salaire, croissance endogène et fluctuations," L'Actualité Economique, Société Canadienne de Science Economique, vol. 68(1), pages 175-204, mars et j.
    2. Ambler, Steve & Paquet, Alain, 1996. "Fiscal spending shocks, endogenous government spending, and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 237-256.
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    Cited by:

    1. Savagar, Anthony & Dixon, Huw, 2020. "Firm entry, excess capacity and endogenous productivity," European Economic Review, Elsevier, vol. 121(C).
    2. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    3. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135, Elsevier.
    4. Tsu-ting Tim Lin & Charles L. Weise, 2019. "A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 81-101, March.
    5. Hernando Zuleta, 2007. "Biased technological change, human capital and factor shares," Documentos de Trabajo 4380, Universidad del Rosario.
    6. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    7. Enchuan Shao & Pedro Silos, 2008. "Firm entry and labor market dynamics," FRB Atlanta Working Paper 2008-17, Federal Reserve Bank of Atlanta.
    8. Macallan, Clare & Millard, Stephen & Parker, Miles, 2008. "The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence," Bank of England working papers 351, Bank of England.
    9. Burda, Michael C. & Weder, Mark, 1998. "Endogenes Wachstum, gleichgewichtige Arbeitslosigkeit und persistente Konjunkturzyklen," SFB 373 Discussion Papers 1999,9, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    10. Jinill Kim, 1997. "Three sources of increasing returns to scale," Finance and Economics Discussion Series 1997-18, Board of Governors of the Federal Reserve System (U.S.).
    11. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 299-353, National Bureau of Economic Research, Inc.
    12. Dissou, Yazid & Mac Leod, Carolyn & Souissi, Mokhtar, 2002. "Compliance costs to the Kyoto Protocol and market structure in Canada: a dynamic general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 751-779, November.
    13. Shao, Enchuan & Silos, Pedro, 2013. "Entry costs and labor market dynamics," European Economic Review, Elsevier, vol. 63(C), pages 243-255.
    14. Michele Boldrin & Lijun Zhu & Yong Wang, 2019. "The Cyclical Behavior of Factor Shares," 2019 Meeting Papers 1208, Society for Economic Dynamics.
    15. Alain Gabler, 2007. "Sector-specific Markup Fluctuations and the Business Cycle," Economics Working Papers ECO2007/25, European University Institute.
    16. Igor Fedotenkov & Lex Meijdam, 2014. "Pension reform with migration and mobile capital: is a Pareto improvement possible?," International Economics and Economic Policy, Springer, vol. 11(3), pages 431-450, September.
    17. Hernando Zuleta & Andrew T. Young, 2007. "Labor's shares - aggregate and industry: accounting for both in a model of unbalanced growth with induced innovation," Documentos de Trabajo 3105, Universidad del Rosario.
    18. Michele Boldrin, 2009. "Growth And Cycles, In The Mode Of Marx And Schumpeter," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(4), pages 415-442, September.
    19. Tonni, Lorenzo, 2023. "Business cycle and factor income shares: a VAR sign restrictions approach," MPRA Paper 116527, University Library of Munich, Germany.
    20. Ríos-Rull, José-Víctor & Santaeulàlia-Llopis, Raül, 2010. "Redistributive shocks and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 931-948, November.
    21. Michele Boldrin, 2009. "Growth And Cycles, In The Mode Of Marx And Schumpeter," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(s1), pages 415-442, September.
    22. Kim, Jinill, 2004. "What determines aggregate returns to scale?," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1577-1594, June.
    23. Tonni, Lorenzo, 2022. "Business cycle and factor income shares: a VAR sign restriction approach," MPRA Paper 114586, University Library of Munich, Germany.
    24. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
    25. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Other publications TiSEM 8830bc21-4138-4479-8459-a, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    competition ; wages;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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