Endogenous Bargaining Power and Declining Labor Compensation Share

Juan Cordoba, Anni T. Isojärvi and Haoran Li ()
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Anni T. Isojärvi: https://www.federalreserve.gov/econres/anni-t-isojaervi.htm

No 92, Opportunity and Inclusive Growth Institute Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We document that the protracted decline in the labor share has been accompanied by a decline in the tightness rate defined as the number of vacancies per job seekers. We argue that these two trends are related. When vacancies and job seekers are complements in the matching process, a decline in the tightness rate reduces workers’ fundamental bargaining power as defined by Hosios (1990), which in turn reduces the labor share of income. We calibrate a search and matching model extended to allow for an endogenous determination of bargaining power. The model can rationalize the common trends in the labor shares and tightness. According to the model, workers’ bargaining power declined by about 15 percent during the 1980–2007 period.

Keywords: CES matching function; Search and matching; Endogenous bargaining power; Labor share (search for similar items in EconPapers)
JEL-codes: E25 J30 J50 (search for similar items in EconPapers)
Date: 2024-05-29
New Economics Papers: this item is included in nep-dge and nep-gth
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Related works:
Working Paper: Endogenous Bargaining Power and Declining Labor Compensation Share (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:98592

DOI: 10.21034/iwp.92

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