This paper develops a bargaining model between employers and workers that is driven by asymmetric information between current employers and potential employers. Both the current employer and the worker have the same information regarding the worker's productivity. This information is not available to outside firms which observe only wages. Existing literature on asymmetric information between current and potential employers typically assumes that workers are price takers, and develops job signaling models. In equilibrium, wages are attached to publicly observable characteristics. High and low ability workers in the same job earn the same wages. This result prompts a question: Why are high productivity workers not able to capture a larger portion of the surplus than less productive workers? I develop a wage signaling model in which workers and employers bargain over wages that addresses this question, and analyze how the market learns about employed workers skills. This model generates a semi-separating equilibrium. More able workers compensate their employers by earning lower wages in the first period to elicit higher future offers from outside firms. These workers' wages depend on their actual productivity. Outside firms observe wages and infer these workers' productivity. They then make offers equal to the worker's productivity and the current employer matches the offers. Less able workers for whom it is too costly to reveal ability through wages earn a wage below their productivity in all periods. I then show that this model of bargaining can generate predictions consistent with several regularities in wage patterns of managers within firms. Existing literature which explains empirical findings on wage dynamics in internal labor markets mainly focuses on incentive models or models in which wages are determined in spot markets (JEL J3, C78,D82, D83).
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number
2002-E27.
Length: Date of creation: Oct 2002 Date of revision: Handle: RePEc:cmu:gsiawp:-209605104
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890 Web page: http://www.tepper.cmu.edu/
Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 150000 papers.