Unemployment Fluctuations With Staggered Nash Wage Bargaining [report]

Mark Gertler, Antonella Trigari
2006 unpublished
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
more » ... nal 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. * Special thanks to Larry Christiano, Eva Nagypal, Gianluca Violante, and Carl Walsh for many helpful comments.
doi:10.3386/w12498 fatcat:hqwljgcvifeibpsasrulynovpm