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A new insight on the inflation persistence: the role of severance pay

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  • Thomas COUDERT

    (LaRGE Research Center, Université de Strasbourg)

Abstract

The aim of this paper is to highlight the interaction between inflation persistence and the labor market institutions in a New Keynesian model with a search and matching labor market. In this framework, I reintroduce severance pay and show that the negotiation of this severance pay creates a new real rigidity into wage dynamics. Indeed, following the bonding critique, in a context of free negotiation and in presence of firing costs, workers agree to pay a share of severance pay in order to reduce the burden on firms. Then, a contribution system appears, affecting the real wage dynamics and inflation persistence through the New Keynesian Phillips curve.

Suggested Citation

  • Thomas COUDERT, 2016. "A new insight on the inflation persistence: the role of severance pay," Working Papers of LaRGE Research Center 2016-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2016-06
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    More about this item

    Keywords

    Labor Market Search; Severance Pay; Wage Bargaining; Inflation Persistence.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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