Higher labour market bargaining power, higher unemployment in recessions

A well-known stylized fact about the US labour market is the behaviour of the female-to-male unemployment gap over the business cycle–in downturns, female unemployment rises at a slower pace than male unemployment, which reduces the gap between the genders; in upturns, the reverse is observed: men’s unemployment falls faster than women’s, thus rendering the gap pro-cyclical. In this paper, we model the labour market under a Diamond-Mortensen-Pissarides framework where the labour supply consists of women and men, who differ in their equilibrium (Nash) bargaining agreement over the match’s surplus. We show that, in the presence of such asymmetry, a negative aggregate productivity shock leads to a pro-cyclical female-to-male unemployment rate gap.