Wages and employment in a repeated game with revenue fluctuations
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Empirical investigations suggests that the real wage is surprisingly flat over the business cycle. This paper analyses a repeated game between a union and a firm which can contribute to explaining the flat wage. The parties cannot enter binding contracts, and revenue is fluctuating. The paper focuses on the best subgame-perfect equilibrium among those sharing the expected surplus in given fixed shares - e.g. equal shares. It is shown that (for moderate discount factors) this equilibrium has a more counter-cyclical wage, than what would be the case if the parties shared the surplus in each period in the same shares
Original language | English |
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Journal | European Economic Review |
Volume | 41 |
Issue number | 1 |
Pages (from-to) | 147-162 |
ISSN | 0014-2921 |
DOIs | |
Publication status | Published - 1997 |
ID: 155833