Private Information, Wage Bargaining and Employment Fluctuations / John Kennan.

Format:

Book

Author/Creator:

Kennan, John.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11967.

NBER working paper series no. w11967

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

Shimer (2005) pointed out that although we have a satisfactory theory of why some workers are unemployed at any given time, we don?t know why the number of unemployed workers varies so much over time. The basic Mortensen-Pissarides (1994) model does not generate nearly enough volatility in unemployment, for plausible parameter values. This paper extends the Mortensen-Pissarides model to allow for informational rents. Productivity is subject to publicly observed aggregate shocks, and to idiosyncratic shocks that are seen only by the employer. It is shown that there is a unique equilibrium, provided that the idiosyncratic shocks are not too large. The main result is that small fluctuations in productivity that are privately observed by employers can give rise to a kind of wage stickiness in equilibrium, and the informational rents associated with this stickiness are sufficient to generate relatively large unemployment fluctuations.

Notes:

Print version record

January 2006.