Aspirations, bargaining power, and macroeconomic performance

Mark Setterfield · Ted Lovejoy

33 citations0/0 files storedJournal of Post Keynesian Economics

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Monetary Policy and Economic Impact Labor market dynamics and wage inequality Economic Theory and Policy

Abstract

A model of aggregate wage and price setting is developed that nests competing hypotheses concerning the role of worker' aspirations and bargaining power in the wage bargain. It is shown that although aspirations and bargaining power always affect inflation in the short run, there is disagreement as to whether or not they influence macroeconomic performance in the long run. Empirical results suggest that a model in which aspirations and bargaining power affect the long-run rate of unemployment best fits the data and most accurately forecasts the rate of inflation. The implications of this result for the potential future performance of the U.S. economy and for macroeconomic policy are explored.

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References

2001Human Development Report 1991Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias 1986Equilibrium Unemployment as a Worker Discipline Device 2000Fairness as a Constraint on Profit Seeking: Entitlements in the Market 1999Forecasting inflation 1943POLITICAL ASPECTS OF FULL EMPLOYMENT1 2016The Endowment Effect, Loss Aversion, and Status Quo Bias 1997Reflections on the Natural Rate Hypothesis

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