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Strategic Wage Bargaining, Labor Market Volatility and Persistence
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1725-6704
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EUI ECO; 2006/42
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HERTWECK, Matthias S., Strategic Wage Bargaining, Labor Market Volatility and Persistence, EUI ECO, 2006/42 - https://hdl.handle.net/1814/6687
Abstract
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.