Working Paper: NBER ID: w12498
Authors: Mark Gertler; Antonella Trigari
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: No keywords provided
JEL Codes: E24; E32; J23; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| staggered multiperiod wage contracting (J33) | wage dynamics (J31) |
| wage dynamics (J31) | volatility in labor market activity (J69) |
| spillover effects of average market wages (J31) | rigidity in wage setting (J38) |
| rigidity in wage setting (J38) | hiring decisions (M51) |
| rigidity in wage setting (J38) | unemployment rates (J64) |
| spillover effects (F69) | employment fluctuations (J63) |
| wage dynamics (J31) | employment rates (J68) |
| wage dynamics (J31) | cyclical behavior of labor market activity (J64) |
| model parameters (C51) | empirical data (C81) |