We examine wage competition in a model where identical workers choose the number of jobs to apply for and identical firms simultaneously post a wage. The Nash equilibrium of this game exhibits the following properties: (i) an equilibrium where workers apply for just one job exhibits unemployment and absence of wage dispersion; (ii) an equilibrium where workers apply for two or for more (but not for all) jobs always exhibits wage dispersion and, typically, unemployment; (iii) the equilibrium wage distribution with a higher vacancy-to-unemployment ratio first-order stochastically dominates the wage distribution with a lower level of labor market tightness; (iv) the average wage is non-monotonic in the number of applications; (v) the equilibrium number of applications is non-monotonic in the vacancy-to-unemployment ratio; (vi) a minimum wage increase can be welfare improving because it compresses the wage distribution and reduces the congestion effects caused by the socially excessive number of applications; and (vii) the only way to obtain efficiency is to impose a mandatory wage that eliminates wage dispersion altogether.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1304.
Find related papers by JEL classification: D62 - Microeconomics - - Welfare Economics - - - Externalities D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Albrecht, James W. & Gautier, Pieter A. & Vroman, Susan B., 2003.
"Matching with multiple applications,"
Economics Letters,
Elsevier, vol. 78(1), pages 67-70, January.
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