Does intra-firm bargaining matter for business cycle dynamics?

Michael Krause and Thomas Lubik

No 2007,17, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: We analyse the implications of intra-firm bargaining for business cycle dynamics in models with large firms and search frictions. Intra-firm bargaining implies a feedback effect from the marginal revenue product to wage setting which leads firms to over-hire in order to reduce workers' bargaining position within the firm. The key to this effect are decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared to a bargaining framework in which firms neglect this feedback. However, the effects of intra-firm bargaining on adjustment dynamics, volatility and comovement are negligible.

Keywords: Strategic wage setting; search and matching frictions; business cycle propagation (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Does Intra-Firm Bargaining Matter for Business Cycle Dynamics? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:6138

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