Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Firm Dynamics, Endogenous Markups, and the Labor Share of Income. / Colciago, A.; Rossi, L.
In: Macroeconomic Dynamics, Vol. 19, No. 6, 30.09.2015, p. 1309-1331.Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Firm Dynamics, Endogenous Markups, and the Labor Share of Income
AU - Colciago, A.
AU - Rossi, L.
PY - 2015/9/30
Y1 - 2015/9/30
N2 - Recent U.S. evidence suggests that the response of labor share to a productivity shock is characterized by countercyclicality and overshooting. These findings cannot be reconciled easily with existing business cycle models. We extend the Diamond-Mortensen-Pissarides model of search in the labor market by considering strategic interactions among an endogenous number of producers, which leads to countercyclical price markups. Although Nash bargaining delivers a countercyclical labor share, we show that countercyclical markups are fundamental to address the overshooting. On the contrary, we find that real wage rigidity does not seem to play a crucial role in the dynamics of the labor share of income. © 2014 Cambridge University Press.
AB - Recent U.S. evidence suggests that the response of labor share to a productivity shock is characterized by countercyclicality and overshooting. These findings cannot be reconciled easily with existing business cycle models. We extend the Diamond-Mortensen-Pissarides model of search in the labor market by considering strategic interactions among an endogenous number of producers, which leads to countercyclical price markups. Although Nash bargaining delivers a countercyclical labor share, we show that countercyclical markups are fundamental to address the overshooting. On the contrary, we find that real wage rigidity does not seem to play a crucial role in the dynamics of the labor share of income. © 2014 Cambridge University Press.
KW - Endogenous Market Structures
KW - Labor Share Overshooting
KW - Search and Matching Frictions
U2 - 10.1017/S1365100513000849
DO - 10.1017/S1365100513000849
M3 - Journal article
VL - 19
SP - 1309
EP - 1331
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
SN - 1365-1005
IS - 6
ER -