Bargaining with Existing Workers, Over-hiring of Firms, and Labor Market Fluctuations
This paper investigates the effects of intra-firm bargaining on the standard real business cycle (RBC) search and matching model by explicitly considering the outside option of a firm in the bargaining with a new worker. In this paper, the outside option of a firm in the bargaining with a new worker is bargaining with existing workers (i.e., intra-firm bargaining). According to Stole and Zwiebel (1996), under the assumption that the firm facing diminishing marginal productivity of labor and its workers cannot commit to future wages, intra-firm bargaining gives the firm an incentive to hire an excessive amount of workers in order to drive wages of workers down. (i.e., the firm â€œover-hiresâ€ workers.) We show the outside option of a firm is crucial for the bargaining with a new worker in the sense that how much the firm pays existing workers, when the match breaks down, determines how many workers it over-hires. In this paper, wages in the outside option of a firm depend on the stochastic bargaining weight of existing workers (i.e., a bargaining shock), which can be identified through labor share data from U.S. Bargaining shocks affect the degree of over-hiring behavior of a firm, and in turn, provide another source to explain the behavior of labor markets in business cycles. The inclusion of intra-firm bargaining and bargaining shocks improves the capacity of the standard RBC search and matching model, especially in labor markets. Our calibrated model generates more volatile total hours, employment, hours per worker while labor share overshoots in response to productivity shocks. In particular, the volatility of employment in the model is similar to the actual U.S. data. Furthermore, the model provides a theory about the overshooting property of labor share, which can be explained by the general equilibrium effects of time-varying bargaining weights of existing workers and over-hiring behavior of the firm.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
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.:
- Shigeru Fujita & Makoto Nakajima, 2013.
"Worker flows and job flows: a quantitative investigation,"
13-09, Federal Reserve Bank of Philadelphia.
- Shigeru Fujita & Makoto Nakajima, 2009. "Worker flows and job flows: a quantitative investigation," Working Papers 09-33, Federal Reserve Bank of Philadelphia.
- Fujita, Shigeru & Nakajima, Makoto, 2016. "Worker flows and job flows: a quantitative investigation," Working Papers 16-3, Federal Reserve Bank of Philadelphia.
- Silva, José Ignacio & Toledo, Manuel, 2009.
"Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment,"
Cambridge University Press, vol. 13(S1), pages 76-96, May.
- Manuel Toledo & Jose I. Silva, 2005. "Labor Turnover Costs and the Cyclical Behavior of Vacancies and Unemployment," 2005 Meeting Papers 775, Society for Economic Dynamics.
- Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
- 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.
- 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.
- Makoto Nakajima, 2012.
"Business Cycles In The Equilibrium Model Of Labor Market Search And Self‐Insurance,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 399-432, 05.
- Makoto Nakajima, 2010. "Business cycles in the equilibrium model of labor market search and self-insurance," Working Papers 10-24, Federal Reserve Bank of Philadelphia.
When requesting a correction, please mention this item's handle: RePEc:red:sed013:721. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.