Unemployment Fluctuations with Staggered Nash Wage Bargaining

Posted: 8 Mar 2007

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: July 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.

Keywords: Unemployment, Labor Market, Nash Bargaining, Wage Rigidity

JEL Classification: E32, E50, J64

Suggested Citation

Gertler, Mark and Trigari, Antonella, Unemployment Fluctuations with Staggered Nash Wage Bargaining (July 2006). CFS Working Paper No. 2007/09, Available at SSRN: https://ssrn.com/abstract=968962

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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