Bargaining Power and the Phillips Curve: A Micro-Macro Analysis

65 Pages Posted: 10 Dec 2020

See all articles by Marco J. Lombardi

Marco J. Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department

Marianna Riggi

Bank of Italy

Eliana Viviano

Bank of Italy

Date Written: November 11, 2020

Abstract

We use a general equilibrium model to show that a decrease in workers’ bargaining power amplifies the relative contribution to the output gap of adjustments along the extensive margin of labour utilization. This mechanism reduces the cyclical movements of marginal cost (and inflation) relative to those of the output gap. We show that the relationship between bargaining power and adjustments along the extensive margin (relative to the intensive margin) is supported by microdata. Our analysis relies on panel data from the Italian survey of industrial firms. The Bayesian estimation of the model using euro-area aggregate data covering the 1970-1990 and 1991-2016 samples confirms that the decline in workers’ bargaining power has weakened the inflation-output gap relationship.

Keywords: low inflation, bargaining power, Phillips curve

JEL Classification: E31, E32, J23, J60

Suggested Citation

Lombardi, Marco Jacopo and Riggi, Marianna and Viviano, Eliana, Bargaining Power and the Phillips Curve: A Micro-Macro Analysis (November 11, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1302, Available at SSRN: https://ssrn.com/abstract=3745925 or http://dx.doi.org/10.2139/ssrn.3745925

Marco Jacopo Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41612809492 (Phone)

Marianna Riggi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Eliana Viviano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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