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Incomplete Wage Posting

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Author Info
Michelacci, Claudio
Suarez, Javier

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

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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References listed on IDEAS
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(explanations, 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.)

  1. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI. [Downloadable!]
    Other versions:
  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. [Downloadable!] (restricted)
    Other versions:
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Alain Delacroix & Shouyong Shi, 2007. "Pricing and Signaling with Frictions," Working Papers tecipa-298, University of Toronto, Department of Economics. [Downloadable!]
  5. Josep Pijoan-Mas, 2003. "Precautionary Savings Or Working Longer Hours?," Working Papers wp2003_0311, CEMFI. [Downloadable!]
    Other versions:
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