Strategic Wage Bargaining, Labor Market Volatility, and Persistence

Matthias Hertweck

No ECO2006/42, Economics Working Papers from European University Institute

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.

Keywords: Business Cycles; Matching; Strategic Bargaining (search for similar items in EconPapers)
JEL-codes: E24 E32 J41 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Strategic wage bargaining, labor market volatility, and persistence (2013)
Working Paper: Strategic Wage Bargaining, Labor Market Volatility, and Persistence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2006/42

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