Unemployment Fluctuations with Staggered Nash Wage Bargaining

49 Pages Posted: 14 Sep 2006 Last revised: 27 Aug 2010

See all articles by Mark Gertler

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Antonella Trigari

Bocconi University - Department of Economics

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Date Written: August 2006

Abstract

A number of authors have recently emphasized that the conventional model of unemployment dynamics due to Mortensen and Pissarides has difficulty accounting for the relatively volatile behavior of labor market activity over the business cycle. We address this issue by modifying the MP framework to allow for staggered multiperiod wage contracting. What emerges is a tractable relation for wage dynamics that is a natural generalization of the period-by-period Nash bargaining outcome in the conventional formulation. An interesting side-product is the emergence of spillover effects of average wages on the bargaining process. We then show that a reasonable calibration of the model can account well for the cyclical behavior of wages and labor market activity observed in the data. The spillover effects turn out to be important in this respect.

Suggested Citation

Gertler, Mark and Trigari, Antonella, Unemployment Fluctuations with Staggered Nash Wage Bargaining (August 2006). NBER Working Paper No. w12498. Available at SSRN: https://ssrn.com/abstract=927382

Mark Gertler (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Antonella Trigari

Bocconi University - Department of Economics ( email )

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Milan, 20136
Italy

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