Colciago, A. and Rossi, L. (2015) Firm Dynamics, Endogenous Markups, and the Labor Share of Income. Macroeconomic Dynamics, 19 (6). pp. 1309-1331. ISSN 1365-1005
Full text not available from this repository.Abstract
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.