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Dynamic wage bargaining and labour market fluctuations: the role of productivity shocks

Author

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  • Marco Guerrazzi

    (University of Genoa)

  • Pier Giuseppe Giribone

    (University of Genoa)

Abstract

In this paper, we explore the way in which different bargaining settings affect labour market fluctuations by means of an analytical apparatus that has never been used for this purpose. Specifically, modelling wage negotiations as a problem of stochastic optimal control, we analyze how productivity disturbances shape the dynamics of output, employment, and wages by focusing on the way in which firms’ technology and workers’ preferences interact with the adjustment rules of employment underlying the bargaining process. With a quadratic production function and risk averse workers, we show that wage negotiation outcomes whose employment adjustments go in the direction of the labour demand of the firms match the cyclical behaviour of the involved variables but fail to replicate the observed wage rigidity. By contrast, we show that wage bargaining outcomes whose employment adjustments target the contract curve of two negotiating parties are also able to deliver a strong degree of wage stickiness.

Suggested Citation

  • Marco Guerrazzi & Pier Giuseppe Giribone, 2021. "Dynamic wage bargaining and labour market fluctuations: the role of productivity shocks," SN Business & Economics, Springer, vol. 1(8), pages 1-20, August.
    • Handle: RePEc:spr:snbeco:v:1:y:2021:i:8:d:10.1007_s43546-021-00098-x
    DOI: 10.1007/s43546-021-00098-x
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    1. Marco Guerrazzi & Pier Giuseppe Giribone, 2022. "The dynamics of working hours and wages under implicit contracts," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1075-1094, October.

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    More about this item

    Keywords

    Dynamic wage bargaining; Right to manage; Monopoly union; Efficient bargaining; Wage and employment fluctuations; Stochastic optimal control;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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