Following Farmer's micro-foundation of the General Theory, I build a competitive search model in which agents are divided in two categories, i.e. wage and profit earners. Within this framework, I show that the model economy has a continuum of equilibria that might be consistent with a certain degree of endogenous real stickiness. Moreover, calibrating and simulating the model in order to fit US first-moment data, I show that this setting can provide a rationale for the Shimer puzzle, i.e. the relative stability of labor productivity in spite of the large volatility of labor market tightness.

This paper aims at representing wage bargaining as an optimal control problem. Specifically, assuming that employment follows a stock-adjustment principle towards the stochastic level that maximizes entrepreneurs' profits, I builds an inter-temporal optimizing model in which the real wage is continuously set by an infinitely-lived arbitrator called in to solve the dispute between workers and employers. This theoretical proposal verifies the natural presumption about real-wage bargaining and suggests that unions are far from having a destabilizing role but, on the contrary, they may well speed up the adjustment to equilibrium. Moreover, I show that when unions do not care about unemployed workers, static bargaining models understate wage negotiation distortions. . ‡ Kidd and Oswald [7] also builds a dynamic version of the efficient bargaining model in which wages are time independent. § Card [9] and Bils [10] propose distinct empirical procedures aimed at testing the contracting effects on wages and employment in unionized markets. Both of them conclude that the empirical evidence seems to be inconsistent with the efficient bargaining setting. However, a different conclusion is achieved by MaCurdy and Pencavel [11]. Some insights on a dynamic version of the efficient bargaining model developed with optimal control techniques are sketched in Appendix A. ¶ ¶ Empirical evidence also suggests that workers' risk aversion provides incentives for unionization (e.g. [22]). It is worth noting that 1− is the Arrow-Pratt measure of workers' relative risk aversion. Therefore, the lower , the higher the workers' risk aversion. Moreover, whenever 0 /(1+ ), the linear bargaining solution in (8) satisfies all the axioms of the generalized Nash solution, i.e. invariance, efficiency and independence of irrelevant alternatives (e.g. [1,2]). ¶ ¶ ¶ It would be possible to show that theẇ = 0 locus is globally ∪-shaped. The proof is left to the reader.As a consequence, Solow and Stiglitiz [12] natural presumption is a trivial re-statement of the absence of any monetary illusion on the union side: the union allows the employees of the representative firm to work more only for higher real wages.

This paper introduces a model of efficiency-wage competition along the lines put forward by Hahn (1987). Specifically, I analyze a two-firm economy in which employers screen their workforce by means of increasing wage offers competing one another for high-quality employees. The main results are the following. First, using a specification of effort such that the problem of firms is well-behaved, optimal wage offers are strategic complements. Second, the symmetric Nash equilibrium can be locally stable under the assumption that firms adjust their wage offers in the direction of increasing profits by conjecturing that any wage offer above (below) equilibrium will lead competitors to underbid (overbid) such an offer. Finally, the exploration of possible labor market equilibria reveals that effort is counter-cyclical

In this paper, I develop a dynamic version of the efficient bargaining model grounded on optimal control in which a firm and a union bargain over the wage in a continuous-time environment under the supervision of an infinitely lived mediator. Overturning the findings achieved by means of a companion right-to-manage framework, I demonstrate that when employment is assumed to adjust itself with some attrition in the direction of the contract curve implied by the preferences of the two bargainers, increases in the bargaining power of the firm (union) accelerate (delay) the speed of convergence towards the stationary solution. In addition, confirming the reversal of the results obtained when employment moves over time towards the firm’s labour demand, I show that the dynamic negotiation of wages tends to penalize unionized workers and favour the firm with respect to the bargaining outcomes retrieved with a similar static wage-setting model.

This paper develops a DSGE model with investment and capital accumulation build along demand-driven explanations of the Great Recession. Specifically, following Farmer (2013), I set forth a search framework in which households decide about consumption while firms decide about recruiting effort as well as investment. This setting closed with market clearing in good and asset markets has one less equation than unknowns. As a consequence, in order to solve such an indeterminacy, I assume that investment is driven by self-fulfilling expectations about the adjustment cost of capital. Consistently with the view of business cycles pushed by stock price fluctuations, this model has the potential to provide a more comprehensive rationale for the consumption–investment patterns observed during the years of the crisis