Matching labor's share in a search and matching model

Christopher Phillip Reicher

No 1733, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: In the United States, labor’s share of income falls after a positive disturbance to productivity growth or inflation, and it remains low for some time. Previous researchers have argued that the negative relationship between productivity growth and labor’s share is puzzling. I argue otherwise. A search and matching model with infrequently bargained nominal wages would predict the observed behavior of labor’s share after a productivity disturbance, and it also predicts the observed behavior of labor’s share after an inflationary disturbance. Wages at the macroeconomic level seem to be sticky in a way which is consistent with microeconomic evidence; much of the ongoing discussion about the real effects of sticky wages seems to be well-motivated, while sticky price models fail to match the data.

Keywords: sticky wages; sticky prices; staggered Nash bargaining; inflation; productivity; search and matching; labor share (search for similar items in EconPapers)
JEL-codes: E24 E25 J23 J31 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1733

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