Search, Wage Bargains and Cycles

Christopher Pissarides

The Review of Economic Studies, 1987, vol. 54, issue 3, 473-483

Abstract: I use an equilibrium model of job matchings with a Nash wage equation to derive the response of wages and unemployment to productivity shocks. By endogenising labour's threat point, I show that wages absorb fully permanent shock but only partially temporary shocks. Hence, unemployment responds to perceived temporary shocks but not to permanent shocks.

Date: 1987
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