Strategic Wage Bargaining, Labor Market Volatility and Persistence
Title: Strategic Wage Bargaining, Labor Market Volatility and Persistence
Author: HERTWECK, Matthias S.
Publisher: European University Institute
Series/Report no.: EUI ECO; 2006/42
This paper modifies the standard Mortensen-Pissarides job matching model in order to explain the cyclical behavior of vacancies and unemployment. The modifications include strategic wage bargaining (Hall and Milgrom, 2006) and convex labor adjustment costs. The results reveal that our model replicates the cyclical behavior of both variables remarkably well. First, we show that strategic wage bargaining increases the volatility of vacancies and unemployment enormously. Second, the introduction of convex labor adjustment costs makes both variables much more persistent. Third, our analysis indicates that both modifications are complementary in generating volatile and persistent labor market variables.
Subject: E24; E32; J41; Business Cycles; Matching; Strategic Bargaining
Type of Access: openAccess