Abstract
This paper features an economy with frictional labour markets, Nash bargaining, cyclical opportunity cost of employment and demand-determined output. I show that the model generates big responses of unemployment to productivity movements. The key insight is that strongly countercyclical markups amplify the impact of aggregate shocks on the fundamental surplus, and as a consequence, on labour market outcomes. This answers the critique of Chodorow-Reich and Karabarbounis that the cyclicality of the opportunity cost poses a challenge to the solution of the unemployment volatility puzzle.
| Original language | English |
|---|---|
| Pages (from-to) | 55-74 |
| Number of pages | 20 |
| Journal | Oxford Economic Papers |
| Volume | 75 |
| Issue number | 1 |
| Early online date | 28 Apr 2022 |
| DOIs | |
| Publication status | Published - 1 Jan 2023 |
Bibliographical note
FundingNo funding was provided for this work.
Access to Document
- Final draft.PDF
This is a pre-copyedited, author-produced version of an article accepted for publication in Oxford Economic Papers following peer review. The version of record Nikolaos Kokonas, A note on the unemployment volatility puzzle, Oxford Economic Papers, 2022;, gpac012 is available online at: https://doi.org/10.1093/oep/gpac012