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Wage bargaining in a matching market: Experimental evidence

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  • Korenok, Oleg
  • Munro, David

Abstract

Wage negotiation plays a central role in the dynamics of search and matching models. We explore the theoretical wage predictions of the canonical search and matching model of Diamond (1982) in laboratory bargaining experiments. Overall, wages in the experiment are less responsive to changes in the market conditions than theory predicts. Wages respond to changes in unemployment insurance in the correct direction, yet the size of the response is about half of what theory predicts. On the other hand, contrary to theory, wages are unresponsive to changes in the level of unemployment. We also find that wages of new matches are more sensitive than wages of on-going matches, and that the duration of unemployment influences wages in certain settings.

Suggested Citation

  • Korenok, Oleg & Munro, David, 2021. "Wage bargaining in a matching market: Experimental evidence," Labour Economics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:labeco:v:73:y:2021:i:c:s0927537121001135
    DOI: 10.1016/j.labeco.2021.102078
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    2. John Duffy & Lucie Lebeau & Daniela Puzzello, 2021. "Bargaining Under Liquidity Constraints: Nash vs. Kalai in the Laboratory," Working Papers 2113, Federal Reserve Bank of Dallas.

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    More about this item

    Keywords

    Wage bargaining; Search and matching; Experiment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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