Sequential bargaining in a new-Keynesian model with frictional unemployment and staggered wage negotiation

We build a model with frictional unemployment and staggered wage bargaining and we assume that hours worked are negotiated every period. We analyze the role of workers’ bargaining power in the hours negotiation on unemployment volatility and inflation persistence. The closer to zero is this parameter, (i ) the more firms adjust on the intensive margin, reducing employment volatility, (ii ) the lower the effective workers’ bargaining power for wages and (iii ) the more important is the hourly wage in the marginal cost determination. Combining staggered wage bargaining with some degree of workers’ bargaining power in the hours negotiation, we produce realistic labor market statistics together with inflation persistence.

Keywords: DSGE, Search and Matching, Nominal Wage Rigidity, Monetary Policy.

JEL classification: E31, E32, E52, J64.