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Credible Threats in a Wage Bargaining Model with on-the-job Search

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  • Cristian Bartolucci

Abstract

In standard equilibrium search models with strategic wage bargaining and on-the-job search, renegotiation is permitted without requirement of a credible threat. Workers trigger renegotiation whenever they have a new outside option that could raise their wages. In this note I modify the model to be consistent with renegotiation by mutual agreement and I show that estimating the model without imposing credible threats for renegotiation generates downward bias in the estimates of the bargaining power.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 203.

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Length: 11 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:cca:wpaper:203

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Keywords: Credible Threats; On-the-job search; Wage bargaining;

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  1. Malcomson, J.M., 1997. "Contracts, hold-up and labor markets," Discussion Paper Series In Economics And Econometrics 9703, Economics Division, School of Social Sciences, University of Southampton.
  2. Shintaro Yamaguchi, 2006. "Job Search, Bargaining, and Wage Dynamics," 2006 Meeting Papers 54, Society for Economic Dynamics.
  3. Fabien Postel-Vinay & Helene Turon, 2006. "On-the-job Search, Productivity Shocks, and the Individual Earnings Process," 2006 Meeting Papers 5, Society for Economic Dynamics.
  4. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA.
  5. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  6. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
  7. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September.
  8. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
  9. James Mabli & Christopher Flinn, 2007. "On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework," 2007 Meeting Papers 791, Society for Economic Dynamics.
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