Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19694
Authors: 
Krause, Michael
Lubik, Thomas A.
Year of Publication: 
2007
Series/Report no.: 
Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2007,17
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.
Subjects: 
Strategic wage setting
search and matching frictions
business cycle propagation
JEL: 
E32
J64
E24
Document Type: 
Working Paper

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