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A NOTE ON THE UNEMPLOYMENT VOLATILITY PUZZLE: IS CREDIBLE WAGE BARGAINING THE ANSWER?

Published online by Cambridge University Press:  05 March 2020

Bingsong Wang*
Affiliation:
The University of Warwick
*
Address correspondence to: Bingsong Wang, Department of Economics, The University of Warwick, Coventry, CV4 7AL, UK. e-mail: [email protected].

Abstract

This paper shows that the ability of the credible wage bargaining model to match the observed unemployment volatility hinges on an unrealistic assumption about disagreement payoffs to the firm. Relaxing this assumption can lead to the substantial wage flexibility. As a consequence, the model is unable to capture the observed unemployment volatility.

Type
Articles
Copyright
© Cambridge University Press 2020

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