Private Information, Wage Bargaining and Employment Fluctuations

John Kennan

No 11967, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Shimer (2005) pointed out that although we have a satisfactory theory of why some workers are unemployed at any given time, we don?t know why the number of unemployed workers varies so much over time. The basic Mortensen-Pissarides (1994) model does not generate nearly enough volatility in unemployment, for plausible parameter values. This paper extends the Mortensen-Pissarides model to allow for informational rents. Productivity is subject to publicly observed aggregate shocks, and to idiosyncratic shocks that are seen only by the employer. It is shown that there is a unique equilibrium, provided that the idiosyncratic shocks are not too large. The main result is that small fluctuations in productivity that are privately observed by employers can give rise to a kind of wage stickiness in equilibrium, and the informational rents associated with this stickiness are sufficient to generate relatively large unemployment fluctuations.

JEL-codes: D8 E3 J6 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-dge and nep-mac
Note: EFG
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Citations: View citations in EconPapers (24)

Published as "Private Information, Wage Bargaining and Employment Fluctuations," Review of Economic Studies, 77, April 2010, 633-664.

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Related works:
Journal Article: Private Information, Wage Bargaining and Employment Fluctuations (2010)
Working Paper: Private Information, Wage Bargaining and Employment Fluctuations (2005)
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