Firms Entry, Oligopolistic Competition and Labor Market Dynamics

31 Pages Posted: 10 Mar 2015

See all articles by Andrea Colciago

Andrea Colciago

De Nederlandsche Bank - Research Department; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Lorenza Rossi

University of Pavia - Department of Economics and Management

Date Written: March 5, 2015

Abstract

Using U.S. quarterly data we provide VAR evidence showing that a positive productivity shock leads to a persistent decrease in the unemployment rate and in the price markup, together with an increase in aggregate profits. In response to the shock the labor share of income decreases on impact and overshoots its long run trend before reverting to equilibrium. To address these facts, we propose a model where Cournot competition and firms’ entry in the goods market interact with search and matching frictions in the labor market. The price markup countercyclicality delivered by our model is a key factor to jointly account for the empirical facts we documented.

Keywords: Firms’ Entry, Oligopolistic competition

JEL Classification: L11, E32

Suggested Citation

Colciago, Andrea and Rossi, Lorenza, Firms Entry, Oligopolistic Competition and Labor Market Dynamics (March 5, 2015). De Nederlandsche Bank Working Paper No. 465, Available at SSRN: https://ssrn.com/abstract=2575564 or http://dx.doi.org/10.2139/ssrn.2575564

Andrea Colciago (Contact Author)

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Lorenza Rossi

University of Pavia - Department of Economics and Management ( email )

via san Felice, 5
27100 Pavia, 27100
Italy

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