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The NAIRU and the Wage-setting / price setting loop: a new skilled/unskilled specification

Author

Listed:
  • P.-O. BEFFY

    (Insee)

  • C. L'ANGEVIN

    (Insee)

Abstract

The long-term equilibrium unemployment rate has returned to the center of the economic debate in France. It derives from two macroeconomic equations. Wages are the result of wage bargaining on the labor market (wage-setting equation) and firms set the corresponding level of employment (price-setting equation). We revisit the wage-price loop by introducing two types of workers : skilled and unskilled. This enables us to distinguish two effects of social contributions on labor : a substitution effect due to the change in relative cost of workers, and the effect on the wedge of the wage bargaining process. We compute a long-term equilibrium unemployment rate that depends, in France, on the terms of trade, the employer social contributions rate for low-wage workers, and the real cost of capital. We finally include the wage-setting and price-setting equations in the French macroeconometric MESANGE model and carry out dynamic simulations in order to analyze the impact upon the French economy of simple shocks such as an increase in long-term labor productivity or an decrease in the rate of social contributions.

Suggested Citation

  • P.-O. Beffy & C. L'Angevin, 2005. "The NAIRU and the Wage-setting / price setting loop: a new skilled/unskilled specification," Documents de Travail de l'Insee - INSEE Working Papers g2005-10, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2005-10
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zr1kq/f1.pdf
    File Function: Document de travail de la DESE numéro G2005-10
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    More about this item

    Keywords

    wage bargaining; skills; unemployment; labor market policy;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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