According to the standard union bargaining model, unemployment benefits should have big effects on wages, but product-market prices and productivity should play no role in the wage bargain. We formulate an alternative strategic bargaining model, where labour and product-market conditions...

How important is imperfect competition in the product market for employment dynamics? To investigate this, we formulate a model of employment adjustment with search frictions, vacancy costs, hiring costs, and imperfect competition in the product market. From this model, we derive a structural...

A contract between a risk-neutral firm and its risk-averse workers is considered under uncertainty about product demand. The authors show that profit sharing can be used to attain the efficient level of employment and, at the same time, preserve optimal risk sharing between the parties. Optimal...

While the consequences of nominal wage contracts have been rather thoroughly analyzed, there is no generally accepted theory of why such contracts prevail. In this paper, the author argues that the distinction between insiders and outsiders is important for understanding nominal wage contracts....

According to standard theory, an increase in demand should raise prices of goods, given factor prices. Empirically, however, prices appear to be unaffected by short-run variations in demand. This paper suggests an explanation of this observation. If customers react slowly to price changes and...

How well do alternative labor market theories explain variations in net job creation? According to search-matching theory, job creation in a firm should depend on the availability of workers (unemployment) and on the number of job openings in other firms (congestion). According to efficiency...