Unemployment Fluctuations with Staggered Nash Wage Bargaining

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 12.07.2005, 12:15 - 13:30

   

Presentation by 

Antonella Trigari (Bocconi University)
   

Abstract:

Shimer (2005) and Hall (2005) have recently emphasized that the conventional model of
unemployment dynamics due to Mortensen-Pissarides(1994) has difficulty acccounting for the
relatively smooth behavior of wages and volatile behavior of employment over the business
cycle. We address this issue by modifying the MP framework to allow for staggered multiperiod
wage contracting. What emerges is a tractable relation for wage dynamics that is a
natural generalization of the period-by-period Nash bargaining outcome in the conventional
formulation. An interesting side-product is the emergence of spillover effects of average wages
on the bargaining process. We then show that reasonable calibration of the model can account
for the reasonably well for the cyclical behavior of wages and labor market activity observed in
the data. The spillover effects turn out to be important in this respect.

   
   
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