New Keynesian perspectives on labor market dynamics

Sveen, Tommy; Weinke, Lutz

doi:10.1016/j.jmoneco.2008.04.001

Cited by 28 publications

(28 citation statements)

References 33 publications

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“…Secondly, as the trade-off between adjusting the intensive and extensive margins is critical in this paper, it is natural to consider that firms choose both margins at the same time. Thirdly, the unability of real wage rigidities to amplify unemployment fluctuations was shown within this timing by Sveen and Weinke (2008). Since we defend the opposite conclusion for the credible bargaining, we keep their timing so as to ensure that our results are not biased by a different timing assumption.…”

Section: The Firm's Programmentioning

confidence: 92%

“…All those papers share the common implication that using micro-founded real wage rigidities matters not only for theoretical elegance, but above all improves quantitative results. Sveen and Weinke (2008) emphasize that the ability of real wage rigidity to amplify unemployment fluctuations critically depends on the way hours are determined. They consider a standard New Keynesian model in which the real wage follows a wage norm.…”

Section: Introductionmentioning

confidence: 99%

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Credible Wage Bargaining and the Joint Dynamics of Unemployment and Inflation

Clerc

2015

SSRN Journal

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: Empirically, unemployment is highly volatile while inflation displays inertia, even though marginal cost is pro-cyclical. It was argued that real wage rigidities would no longer help replicate these facts, once firms determine employment and hours per worker.In this paper, real wage stickiness stems from wage bargaining with credible threat points, that we embed into a New Keynesian framework in which firms adjust both labor margins.This model notably reproduces the large jump in unemployment in the Great Recession.Moreover, inflation inertia is made consistent with pro-cyclical marginal cost since the credible bargaining induces strategic complementarities between firms.JEL Classification : E32, E50, J63, J64.Keywords : New-Keynesian model, labor market frictions, unemployment, inflation, real wage rigidities.Extrait : Empiriquement, le taux de chômage est fortement volatile aux Etats-Unis alors que l´inflation est inerte, bien que le coût marginal soit pro-cyclique. La littérature a montré que les rigidités de salaire réel ne permettaient plus de répliquer ces faits stylisés lorsque les entreprises ajustent l´emploi et les heures par travailleur. Dans ce papier, les rigidités de salaire réel proviennent de la négociation salariale crédible, introduite dans un modèle Néo-Keynésien avec frictions sur le marché du travail. Les entreprises ajustent l´emploi et les heures par travailleur. Ce modèle réplique en particulier la forte augmentation du taux de chômage liéeà la Grande Récession. En outre, l´inertie de l´inflation est rendue compatible avec un coût marginal pro-cyclique dans la mesure où la négociation crédible implique des complémentarités stratégiques entre les entreprises.Codes JEL : E32, E50, J63, J64. In this paper, we argue that those failures are not related to real wage rigidities per se, but instead to the way these rigidities are introduced. The literature traditionally integrates those rigidities through the lens of an ad-hoc wage norm. Here, real wage stickiness results from wage bargaining with credible threat points (Hall and Milgrom (2008)) which corresponds to the sequential bargaining game of Rubinstein (1982). We introduce this wage bargaining into a New Keynesian framework with matching frictions in the labor market.Firms adjust both labor margins and set prices.We first show that this model replicates the high volatility of unemployment, as well as the small and persistent movements in inflation, that characterize US post-war data. Moreover, the model displays inflation inertia in a way consistent with the pro-cyclical behavior of marginal cost. We next use our framework to address the "missing deflation puzzle" raised by Hall (2011), namely the unability of New Keynesian models to restitute the small decline in inflation that followed the financial crisis of 2008. We show that the model reproduces the 2 impulse response functions for both unemployment and inflation after the financial shock, making the weak fall in inflation consistent with the deep economic slack. We finall...

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Section: The Firm's Programmentioning

confidence: 92%

Section: Introductionmentioning

confidence: 99%

Credible Wage Bargaining and the Joint Dynamics of Unemployment and Inflation

Clerc

2015

SSRN Journal

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“…Wealth effects on labor supply would also counterfactually imply asset-rich individuals preferring unemployment over employment. 5 Second, along with the assumption on the contracting environment, the preferences eliminate the need for a perfect consumption insurance assumption typical in New Keynesian models with search (for example, Walsh, 2005;Sveen and Weinke, 2008;Kuester, 2010;Thomas, 2011).…”

Section: Independent Individuals (Ii)mentioning

confidence: 99%

“…Table 2 highlights the abilities of each model to match the volatilities of average hourly wages and aggregate hours. 11 These comparisons are not arbitrary, but instead chosen to highlight how the models can match or miss match moments that related frameworks typically have trouble matching (see Sveen and Weinke, 2008 Comparing the II-MWF and the RH-MWF models, both have cross-sectional and time-series variation in individual hours, but the latter generates slightly too much volatility in aggregate hours. The reasons for this higher volatility are due to indirect general equilibrium effects, rather than direct ones.…”

Section: Calibration and Moment Matchingmentioning

confidence: 99%

“…The alternative models studied in this paper draw mainly on the literature for New Keynesian models with frictional labor markets. The wholesaler-retailer environment is well-known, having been studied by, for example, Walsh (2005), Trigari (2006), Sveen andWeinke (2008), andChristiano et al (2016), among many others. On the other hand, Kuester (2010), Barnichon (2010), Thomas (2011), and Lago Alves (2018) study environments where firms face trade-offs from both pricing and hiring frictions.…”

Section: Introductionmentioning

confidence: 99%

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