Sequential Bargaining in a New-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation
Gregory De Walque
Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences; National Bank of Belgium
Banque Centrale du Luxembourg; IRES, UCL
Henri R. Sneessens
Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES); Institute for the Study of Labor (IZA)
National Bank of Belgium
IZA Discussion Paper No. 4059
We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers' bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers' bargaining power for wages and (iii) the more important the hourly wage in the marginal cost determination. This set-up produces realistic labor market statistics together with inflation persistence. Distinguishing the probability to bargain the wage of the existing and the new jobs, we show that the intensive margin helps reduce the new entrants wage rigidity required to match observed unemployment volatility.
Number of Pages in PDF File: 32
Keywords: DSGE, search and matching, nominal wage rigidity, monetary policy
JEL Classification: E31, E32, E52, J64working papers series
Date posted: March 30, 2009
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