Does Intra-Firm Bargaining Matter for Business Cycle Dynamics?

Posted: 14 Jul 2021

See all articles by Michael U. Krause

Michael U. Krause

affiliation not provided to SSRN

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2013

Abstract

We analyze the implications of intra-firm bargaining for business cycle dynamics in models with large firms and search frictions. Intra-firm bargaining implies a feedback from the marginal revenue product to wage setting, which leads firms to over-hire in order to reduce workers' bargaining position within the firm. The keys to this effect are decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared with a bargaining framework in which firms neglect this feedback effect. However, the effects of intra-firm bargaining on aggregate adjustment dynamics, volatility, and co-movement are negligible.

JEL Classification: E3

Suggested Citation

Krause, Michael U. and Lubik, Thomas, Does Intra-Firm Bargaining Matter for Business Cycle Dynamics? (2013). Available at SSRN: https://ssrn.com/abstract=3886202

Michael U. Krause (Contact Author)

affiliation not provided to SSRN

No Address Available

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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