Imperfectively Competitive Labor Markets and the Productivity Puzzle

University of Aarhus Economics Working Paper No. 1999-7

Posted: 19 Jul 1999

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Eric Toulemonde

IZA Institute of Labor Economics; Facult├ęs Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences

Date Written: 1999

Abstract

Standard models of imperfectly competitive labor market predict that real wages are unaffected by productivity. This is in conflict with empirical evidence. We integrate imperfectly competitive labor markets in a fully specified dynamic macromodel. While temporary shocks are consistent with the business cycle fact of little real wage and large employment responsiveness, we find in accordance with empirical evidence that permanent productivity changes affect real wages and not employment. Hence, the model solves the productivity puzzle and is capable of matching both business cycle and long-run facts concerning movements of real wages and employment.

JEL Classification: E32, J31, J51

Suggested Citation

Andersen, Torben M. and Toulemonde, Eric, Imperfectively Competitive Labor Markets and the Productivity Puzzle (1999). University of Aarhus Economics Working Paper No. 1999-7, Available at SSRN: https://ssrn.com/abstract=160252

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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Eric Toulemonde

IZA Institute of Labor Economics ( email )

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