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

Thomas Coudert

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), 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.

Keywords: Labor Market Search; Severance Pay; Wage Bargaining; Inflation Persistence. (search for similar items in EconPapers)
JEL-codes: E31 E32 J31 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ger, nep-lma and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2016-06

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