On the Quantitative Importance of Wage Bargaining Models

Universitat Pompeu Fabra Economics WP No. 262

40 Pages Posted: 7 Jul 1998

See all articles by James S. Costain

James S. Costain

Banco de España - Research Department

Date Written: January 1998

Abstract

Four general equilibrium search models are compared quantitatively. The baseline framework is a calibrated macroeconomic model of the U.S. economy designed for a welfare analysis of unemployment insurance policy. The other models make three simple and natural specification changes, regarding tax incidence, monopsony power in wage determination, and the relevant threat point. These specification changes have a major impact on the equilibrium and on the welfare implications of unemployment insurance, partly because search externalities magnify the effects of wage changes. The optimal level of unemployment insurance depends strongly on whether raising benefits has a larger impact on search effort or on hiring expenditure.

JEL Classification: C78, J64, J65

Suggested Citation

Costain, James S., On the Quantitative Importance of Wage Bargaining Models (January 1998). Universitat Pompeu Fabra Economics WP No. 262, Available at SSRN: https://ssrn.com/abstract=105148 or http://dx.doi.org/10.2139/ssrn.105148

James S. Costain (Contact Author)

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

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