Job Market Paper

Bargaining Shocks and the Macroeconomy: A Narrative Approach [pdf]

What are the effects of increases in the bargaining power of workers on output and the labor share? This paper uses a narrative approach to answer this question.  I draw on historical and institutional evidence to track how the stance of the U.S. executive branch toward the capital-labor conflict has evolved over time. Using this narrative information, together with a minimal amount of economic theory, I estimate a structural vector autoregression to assess the effects of bargaining shocks on the economy. I find that a typical increase in workers’ bargaining power lowers output by 0.4–0.8 percent in the long run, while its effects on the labor share are negligible or negative. Bargaining shocks explain about one-third of output fluctuations at all horizons but account for little of the variance in unemployment. Absent bargaining shocks, the recent decline in the labor share would have been 20 percent more pronounced. Demand shocks account for most of the labor share’s recent decline.