Bargaining shocks and aggregate fluctuations

Abstract

Victor Ríos-Rull, and two insightful referees. The views expressed herein are our own views only. They do not necessarily reflect the views of the Federal Reserve Bank of Philadelphia, the Federal Reserve System, its Board of Governors, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Revisiting Real Wage Rigidity

“…Wage bargaining shocks make a larger contribution in 1975–95; the two shocks have roughly equal importance in recent years. The relative importance of the shock to worker wage bargaining power in Figure 1 is consistent with evidence in Fujita and Ramey (2007), Pizzinelli, Theodoridis, and Zanetti (2020), Drautzburg, Fernández‐Villaverde, and Guerrón‐Quintana (2021) and Ellington, Martin, and Wang (2021).…”

“…The impact of the wage bargaining power shock in the data reduces the average semi‐elasticity, thereby making this a biased estimate of the response of real wages to unemployment following productivity shocks. Evidence on the importance of this shock is in, among others, Fujita and Ramey (2007), Pizzinelli, Theodoridis, and Zanetti (2020), Drautzburg, Fernández‐Villaverde, and Guerrón‐Quintana (2021) and Ellington, Martin, and Wang (2021). Our results quantify the size of the bias.…”

Business Cycles With Cyclical Returns to Scale

“…Our emphasis on procyclical returns to scale differs from previous papers that emphasize other sources of relatively more procyclical price markup, such as wage rigidity (Nekarda and Ramey 2020), timevarying demand elasticity (Stroebel and Vavra 2019), and endogenous assortment (Anderson et al 2020). As a complementary mechanism to ours, Drautzburg et al (2021) consider bargaining shocks, which resemble wage markup shocks, and explain the factor (capital) share cyclicality using a Bayesian VAR and a structural model. Having procyclical returns to scale also decreases the contributions of markup shocks to output fluctuations compared to Smets 2 There are important studies that microfound the aggregate production function with heterogeneous industry or firm models (e.g., Atalay, 2017;Raval, 2019;Oberfield and Raval, 2021;Smirnyagin, 2022).…”

“…As a complementary mechanism to ours, Drautzburg et al. (2021) consider bargaining shocks, which resemble wage markup shocks, and explain the factor (capital) share cyclicality using a Bayesian VAR and a structural model. Having procyclical returns to scale also decreases the contributions of markup shocks to output fluctuations compared to Smets and Wouters (2007).…”

Trends in Worker Bargaining Power

“…Drautzburg et al (2021) shows the importance of bargaining power in determining aggregate fluctuations with significant welfare costs. Finally, de Almeida Vilares and Reis (2022) builds a dynamic search-and-matching model and estimates it on Portuguese data.…”