Striking a Bargain: Narrative Identification of Wage Bargaining Shocks

Wage markup shocks, an important driver of business cycles, are hard to pin down. We quantify the importance of exogenous variation in wage bargaining power, one source of those shocks, from German minimum wage introduction episodes and strikes. This disciplines the impulse responses of unemployment and output, and sharpens inference for other variables, which behave consistently with predictions from search‐and‐matching models. We find that wage bargaining shocks meaningfully contribute to aggregate fluctuations in unemployment and inflation, exhibit substantial pass‐through to prices, and imply plausible dynamics for the vacancy rate, firms' profits, and the labor share.