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)


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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