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Philippe Weil, ECARES Print
Friday, 15 March 2019, 12:15 - 13:15

Philippe Weil, ECARES

Market power, efficiency and the wage Phillips curve in frictional goods and labor markets

Abstract : This paper studies the optimal sharing of value added between consumers, producers, and labor. The price that implements the constrained efficient allocation maximized the expected revenue at entry of a firm, while the wage determines the efficient tightness of the labormarket or scale of the economy. Under price and wage bargaining, this allocation is achieved with a double Hosios condition and goods and labor market price setting power. We find that the elasticity of wages relative to that of unemployment to a demand shock - a slope of the wage Phillips curve - away from Hosios in the goods market. In contrast, rising firms goods market power always increases the mark up of price over wage. The model thus rationalizes the joint observation of a flattening wage Phillips curve and rise firm market power, and implies that such trends indicate departures from efficiency. 

Location: R42.2.113
Contact: Nancy De Munck, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it