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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Quaderni di Dipartimento ; No. 168

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Subject: Endogenous Market Structures ; Oligopolistic Competition ; Firms' Entry ; Search and Matching Frictions ; Labor Share Overshooting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Colciago, Andrea ; Rossi, Lorenza
• Event: Veröffentlichung
• (who): Università degli Studi di Pavia, Dipartimento di Economia Politica e Metodi Quantitativi (EPMQ)
• (where): Pavia
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/95335
• Last update: 10.03.2025, 11:46 AM CET