Does intra-firm bargaining matter for business cycle dynamics?

Michael Krause () and Thomas Lubik ()

No 2007,17, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre

Abstract: We analyse the implications of intra-firm bargaining for business cycle dynamics in models with large firms and search frictions. Intra-firm bargaining implies a feedback effect from the marginal revenue product to wage setting which leads firms to over-hire in order to reduce workers? bargaining position within the firm. The key to this effect are decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared to a bargaining framework in which firms neglect this feedback. However, the effects of intra-firm bargaining on adjustment dynamics, volatility and comovement are negligible. --

Keywords: Strategic wage setting; search and matching frictions; business cycle propagation (search for similar items in EconPapers)
JEL-codes: E32 J64 E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
Date: 2007
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:bubdp1:6138

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