Inefficient unemployment and bargaining friction

C. Y. Kelvin Yuen

Macroeconomic Dynamics, 2026, vol. 30, e50

Abstract: This paper examines how bargaining frictions generate privately inefficient job separations and amplify unemployment fluctuations. I propose a simple specification of bargaining friction by including bargaining wedges in the standard Nash bargaining model. Such bargaining wedges arise when, for example, wages are determined by alternating-offers bargaining, which is often used in the literature to generate real wage rigidity, or when there is asymmetric information about worker’s productivity. I show that due to the misalignment between actual surpluses and bargaining surpluses, inefficient separations could be generated, which would in turn induce inefficient unemployment. I highlight a distinct amplification mechanism that operates through the separation margin. The existence of inefficient unemployment due to bargaining friction could accentuate the fluctuation of unemployment. Quantitatively, I find that inefficient unemployment accounts for up to 30% of the total unemployment volatility in the calibrated model.

Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:30:y:2026:i::p:e50_50

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().