Firm Entry, Endogenous Markups and the Dynamics of the Labor Share

Andrea Colciago and Lorenza Rossi

No 168, Quaderni di Dipartimento from University of Pavia, Department of Economics and Quantitative Methods

Abstract: Recent U.S. evidence suggests that the response of the labor share to a productivity shock is characterized by countercyclicality and overshooting. These findings cannot be easily reconciled with existing business cycle models. We extend the standard model of search and matching in the labor market by considering strategic interactions among an endogenous number of producers. This leads to countercyclical price markups. While Nash bargaining is sufficient to capture the labor share countercyclicality, we show that countercyclical markups are key to address the overshooting.

Keywords: Endogenous Market Structures; Oligopolistic Competition; Firms' Entry; Search and Matching Frictions; Labor Share Overshooting. (search for similar items in EconPapers)
JEL-codes: E24 E32 L11 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012-03
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
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