Endogenous real wage rigidity in a search frictions model

The canonical matching model is the workhorse model of the labour market but lacks a proper amplification mechanism for productivity shocks. One way to amplify the effects of shocks is to allow workers to endogenously adjust their job search effort: as search effort is procyclical in the canonical model, volatilities increase. Yet, the empirical literature points against procyclical search effort, raising doubts of how acyclical (or countercyclical) search effort can coincide with volatile labour market variables in matching models. We show that they can coincide in a model with procyclical value of leisure and alternating-offer wage bargaining.

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A Keynesian model of aggregate demand in the long‐run

McDonald

2021

Metroeconomica

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This paper develops the Keynesian theory of aggregate demand in the long‐run in which persistently low levels of aggregate demand can generate persistently low levels of activity with the associated persistently high rates of unemployment. Wages are determined by firm‐worker bargaining/sharing. Investment is influenced by monopoly power, aggregate demand and the interest rate. Decreasing rates of deflation of money wages and prices even at high rates of unemployment are prevented by workers being assumed to be loss averse with respect to reductions in their wages below a reference real wage.

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Endogenous real wage rigidity in a search frictions model

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Cited by 4 publications

References 60 publications

A Note on the Unemployment Volatility Puzzle: Is Credible Wage Bargaining the Answer?

A Note on the Unemployment Volatility Puzzle: Is Credible Wage Bargaining the Answer?

The cyclicality of job search effort in matching models

A Keynesian model of aggregate demand in the long‐run

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