Salle 3001

Leo KAAS (University Frankfurt) “Job ladder and wealth dynamics in general equilibrium”

Abstract: This paper develops a macroeconomic model that combines an incomplete-markets overlapping-generations economy with a job ladder featuring sequential wage bargaining, endogenous search effort of employed and non-employed workers, and differences in match quality. With these ingredients our model provides a joint microfoundation for the three main inputs in aggregate production: capital, employment and labor efficiency. The calibrated model offers a good fit to the empirical age profiles of search activity, job-finding rates, wages and savings. We use the model to analyze the impact of tax and transfer policies for labor market dynamics and aggregate economic activity via capital, employment and labor efficiency channels. Lower unemployment benefits and a less progressive tax schedule bring about welfare losses for a newborn worker which are mainly driven by higher consumption risk and costlier search effort; both policies have differential effects along the age, income and wealth dimensions. Following the Covid pandemic, the Suez Canal blockage and the Ukrainian war, many goods experienced stockouts and delivery delays. But if prices are flexible, then production cost increases pass through to prices, and all goods remain available. Only if prices are sticky might firms ration demand through stockouts or delivery delays, to avoid selling goods at a price below marginal cost. However, the standard assumption in solving sticky price models is that firms sell the entire quantity demanded at their price. This paper investigates the consequences of allowing firms to ration under sticky prices, in a continuous time model with idiosyncratic demand shocks and endogenous price rigidity. Rationing helps the model match empirical results from both micro & macro data. It produces a convex, backward bending Phillips curve, yet lower monetary non-neutrality and significantly higher optimal inflation.”

Organizer : Franck MALHERBET