Sequential Bargaining in a New-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation

32 Pages Posted: 30 Mar 2009

See all articles by Gregory de Walque

Gregory de Walque

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences; National Bank of Belgium

Olivier Pierrard

Banque Centrale du Luxembourg; IRES, UCL

Henri R. Sneessens

Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES); IZA Institute of Labor Economics

Rafael Wouters

National Bank of Belgium

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Abstract

We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers' bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers' bargaining power for wages and (iii) the more important the hourly wage in the marginal cost determination. This set-up produces realistic labor market statistics together with inflation persistence. Distinguishing the probability to bargain the wage of the existing and the new jobs, we show that the intensive margin helps reduce the new entrants wage rigidity required to match observed unemployment volatility.

Keywords: DSGE, search and matching, nominal wage rigidity, monetary policy

JEL Classification: E31, E32, E52, J64

Suggested Citation

de Walque, Gregory and de Walque, Gregory and pierrard, olivier and Sneessens, Henri and Wouters, Rafael, Sequential Bargaining in a New-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation. IZA Discussion Paper No. 4059, Available at SSRN: https://ssrn.com/abstract=1369805 or http://dx.doi.org/10.2139/ssrn.1369805

Gregory De Walque (Contact Author)

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Olivier Pierrard

Banque Centrale du Luxembourg ( email )

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Luxembourg, L-2983
Luxembourg

IRES, UCL ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

Henri Sneessens

Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium
+ (32) 10 47 39 62 (Phone)
+ (32) 10 47 39 45 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Rafael Wouters

National Bank of Belgium ( email )

Brussels, B-1000
Belgium
+32 2 221 5441 (Phone)
+32 2 221 3162 (Fax)

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