Does intra-firm bargaining matter for business cycle dynamics?

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We analyse the implications of intra-firm bargaining for business cycle dynamics inmodels with large firms and search frictions. Intra-firm bargaining implies a feedback effect from the marginal revenue product to wage setting which leads firms to over-hirein order to reduce workers' bargaining position within the firm. The key to this effecta re decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared to a bargaining frameworkin which firms neglect this feedback. However, the effects of intra-firm bargaining on adjustment dynamics, volatility and comovement are negligible.