Search, Wage Bargains and Cycles
AuthorPissarides, Christopher A.
SourceReview of Economic Studies
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I use an equilibrium model of job matchings with a Nash wage equation to derive the response of wages and unemployment to productivity shocks. By endogenising labour’s threat point, I show that wages absorb fully permanent shock but only partially temporary shocks. Hence, unemployment responds to perceived temporary shocks but not to permanent shocks. © 1987 The Society for Economic Analysis Limited.