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Incomplete Wage Posting

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  • Michelacci, Claudio
  • Suarez, Javier

Abstract

We consider a competitive search model where firms with vacancies choose between posting a wage ex-ante and bargaining it with workers ex-post. Workers apply for vacancies after observing firms' wage setting decisions, and differ in some observable but not verifiable qualifications that affect their productivity in the job. Thus posted wages prevent the hold-up problem associated with bargaining but are incomplete since they cannot be contingent on worker qualifications. In contrast, bargained wages increase with qualifications and, thus, may serve to entice better workers into the vacancy. We find that when the hold-up problem is mild and workers' heterogeneity is large, firms opt for bargaining. Yet equilibria with bargaining always fail to maximize aggregate net income and sometimes fail to be constrained Pareto optimal.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3658.

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Date of creation: Nov 2002
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Handle: RePEc:cpr:ceprdp:3658

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Keywords: adverse selection; bargaining; directed search; search frictions; wage inequality;

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Citations

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Cited by:
  1. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI.
  2. Michelacci, Claudio & Pijoan-Mas, Josep, 2007. "The Effects of Labor Market Conditions on Working Time: the US-EU Experience," CEPR Discussion Papers 6314, C.E.P.R. Discussion Papers.
  3. Carlos Carrillo-Tudela & Leo Kaas, 2011. "Wage Dispersion and Labor Turnover with Adverse Selection," CESifo Working Paper Series 3562, CESifo Group Munich.
  4. Gabriele Camera & Alain Delacroix, 2004. "Trade Mechanism Selection in Markets with Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 851-868, October.
  5. Jansen, Marcel, 2010. "Job auctions and hold-ups," Labour Economics, Elsevier, vol. 17(3), pages 608-619, June.
  6. Bengtsson, Niklas, 2011. "Efficient Renegotiation in Search Markets: Theory and Field Experimental Evidence," Working Paper Series, Center for Labor Studies 2011:13, Uppsala University, Department of Economics.
  7. Matthew Doyle & Jacob Wong, 2008. "Wage Posting Without Full Commitment," School of Economics Working Papers 2008-01, University of Adelaide, School of Economics.
  8. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.
  9. Alain Delacroix & Shouyong Shi, 2007. "Pricing and Signaling with Frictions," Working Papers tecipa-298, University of Toronto, Department of Economics.
  10. Brencic, Vera & Norris, John B., 2010. "Do employers change job offers in their online job ads to facilitate search?," Economics Letters, Elsevier, vol. 108(1), pages 46-48, July.
  11. Masui, Makoto, 2011. "Jobs with different wage determination mechanisms, social efficiency and unemployment," Journal of the Japanese and International Economies, Elsevier, vol. 25(1), pages 56-75, March.
  12. Anbarci, Nejat & Gomis-Porqueras, Pedro & Marcus, Pivato, 2012. "Formal and informal markets: A strategic and evolutionary perspective," MPRA Paper 42513, University Library of Munich, Germany.

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