Firm Entry, Endogenous Markups and the Dynamics of the Labor Share

Andrea Colciago; Lorenza Rossi

Recent U.S. evidence suggests that the response of the labor share to a productivity shock is characterized by countercyclicality and overshooting. These findings cannot be easily reconciled with existing business cycle models. We extend the standard model of search and matching in the labor market by considering strategic interactions among an endogenous number of producers. This leads to countercyclical price markups. While Nash bargaining is sufficient to capture the labor share countercyclicality, we show that countercyclical markups are key to address the overshooting.

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Year of publication:	2012
Authors:	Colciago, Andrea ; Rossi, Lorenza
Publisher:	Pavia : University of Pavia, Department of Economics and Quantitative Methods
Subject:	Endogenous Market Structures \| Oligopolistic Competition \| Firms' Entry \| Search and Matching Frictions \| Labor Share Overshooting \| Lohnquote \| Labor share \| Markteintritt \| Market entry \| Theorie \| Theory \| Oligopol \| Oligopoly \| Matching \| Dynamisches Gleichgewicht \| Dynamic equilibrium \| Marktstruktur \| Market structure \| Mark-up Pricing \| Mark-up pricing \| Arbeitsmarkt \| Labour market \| Duopol \| Duopoly