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Preferences for Rigid Versus Individualized Wage Setting

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  • Boeri, Tito
  • Burda, Michael C

Abstract

Firing frictions and renegotiation costs affect worker and firm preferences for rigid wages versus individualized Nash bargaining in a standard model of equilibrium unemployment, in which workers vary by observable skill. Rigid wages permit savings on renegotiation costs and prevent workers from exploiting the firing friction. For standard calibrations, the model can account for political support for wage rigidity by both workers and firms, especially in labour markets for intermediate skills. The firing friction is necessary for this effect, and reinforces the impact of both turbulence and other labour market institutions on preferences for rigid wages.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4444.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4444

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Related research

Keywords: equilibrium unemployment; firing taxes; job protection; renegotiation costs; wage rigidities;

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Cited by:
  1. Björn Brügemann, 2012. "Does Employment Protection Create Its Own Political Support?," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 369-416, 04.

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