Cyclical Labor Market Policy Adjustments Under Wage Bargaining

73 Pages Posted: 4 Aug 2021

See all articles by Euiyoung Jung

Euiyoung Jung

Paris School of Economics (PSE)

Abstract

This paper analyzes the optimal cyclical behavior of labor market policies in an economy with asset and labor market frictions. The policies of interest include unemployment insurance (UI) and employment protection (EP). In addition to their supply-side effects, labor market policies affect the aggregate demand via earning risk and redistribution channels. Under bilateral wage bargaining, I find that procyclical UI and countercyclical EP deliver superior welfare outcomes through stabilization via both supply and demand channels.

Keywords: New Keynesian, Uncertainty, Unemployment, Incomplete markets, Labor market policy

JEL Classification: E12, E21, E24, E29, E32, E61, E69, J68, J65

Suggested Citation

Jung, Euiyoung, Cyclical Labor Market Policy Adjustments Under Wage Bargaining. Available at SSRN: https://ssrn.com/abstract=3899305 or http://dx.doi.org/10.2139/ssrn.3899305

Euiyoung Jung (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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