Unions, monetary shocks and the labour market cycle

This paper provides a new growth model by considering strategic behaviour in the supply of labour. Workers form a labour union with the aim of manipulating wages for their own benefit. We analyse the implications on labour market dynamics at business cycle frequencies of getting away from the price-taking assumption. A calibrated monetary version of the union model does quite a reasonable job in replicating the dynamic features of labour market variables observed in post-war U.S. data.

Research Highlights► Suppliers of labour engage in strategic behaviour. ► Productivity shocks effects are small due to slow reaction of employment. ► Inflationary expectations have large effects on labour supply. ► The union model does a good job in reproducing labour market dynamics.