Monopsony, Wage Bargaining and the Phillips Curve

With nominal wage rigidities, it is crucial to distinguish whether wages are set by workers or firms -- whether we have monopoly or monopsony power. This paper provides a model of wage bargaining in the labour market where workers have monopoly power over firms, but firms also have monopsony power over workers, and the model also features nominal wage rigidities. When employees have all the bargaining power (monopoly), the wage is above the competitive equilibrium, and the Phillips Curve is upward sloping. When employers have all the bargaining power (monopsony), the wage is below the competitive equilibrium, and the PC is downward sloping. In equilibrium, the wage level and the slope of the Phillips Curve depends on the bargaining power of employers and employees.