This paper analyzes the implications of bilateral bargaining over wages and employment between a producer and a union …. Wages and aggregate employment levels are set according to an efficient (Nash) bargaining agreement while the commodity …, and wages is analyzed being driven primarily by government budget deficits and expectations by consumers. It is shown that …

. We solve (i) for the Markov perfect equilibria with no commitment, under the assumption that the union chooses wages each … entire (infinite) sequence of wages. We conclude that the speed of adjustment of employment, that is higher in the … employment and wages only in the no-commitment case, i.e., the higher the relevance of adjustment costs the higher the wage and …

. We solve (i) for the Markov perfect equilibria with no commitment, under the assumption that the union chooses wages each … entire (infinite) sequence of wages. We conclude that the speed of adjustment of employment, that is higher in the … employment and wages only in the no-commitment case, i.e., the higher the relevance of adjustment costs the higher the wage and …

. We solve (i) for the Markov perfect equilibria with no commitment, under the assumption that the union chooses wages each … entire (infinite) sequence of wages. We conclude that the speed of adjustment of employment, that is higher in the no … and wages only in the no-commitment case, i.e., the higher the relevance of adjustment costs the higher the wage and …