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Does Intra-Firm Bargaining Matter for Business Cycle Dynamics?

Year: 2007

Type: article

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.

Source: RePEc: Research Papers in Economics

DOI: 10.2139/ssrn.2785292

Authors: Michael U. Krause, Thomas Lubik

Institutions: University of Cologne, Federal Reserve, Federal Reserve Bank of Richmond

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W1519583348