The Limited Influence of Unemployment on the Wage Bargain
AbstractWhen a job-seeker and an employer meet, find a prospective surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may be irrelevant. The job-seeker's threat point in the bargain is to delay bargaining, not to terminate bargaining and resume search at other employers. Similarly, the employer's threat point is to delay bargaining, not to terminate it. Consequently, the outcome of the bargain depends on the relative costs of delay to the parties, not on the results of irrational threats to disclaim any bargain. In a model of the labor market that otherwise adopts all of the features of the standard Mortensen-Pissarides model, unemployment is much more sensitive to changes in productivity than in the standard model, because feedback through the wage is absent. We also present models where the wage bargain is in partial contact with conditions in the labor market.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000135.
Date of creation: 26 Jan 2007
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Other versions of this item:
- Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-74, September.
- Robert E. Hall & Paul R. Milgrom, 2005. "The Limited Influence of Unemployment on the Wage Bargain," NBER Working Papers 11245, National Bureau of Economic Research, Inc.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-02 (All new papers)
- NEP-BEC-2006-07-02 (Business Economics)
- NEP-LTV-2006-07-02 (Unemployment, Inequality & Poverty)
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.:
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NBER Working Papers
11183, National Bureau of Economic Research, Inc.
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dp0110, Centre for Economic Performance, LSE.
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