Efficient Labor Force Participation with Search and Bargaining
AbstractA fixed wage is inefficient in a standard search model when workers endogenously separate from employment. We derive an efficient employment contract that involves agents paying a hiring fee (or bond) upon the formation of a match. We estimate the fixed wage and efficient contract assuming the hiring fee is unobservable, and find evidence to reject the efficient contract in favor of the fixed wage rule. A counterfactual experiment reveals the current level of labor force participation to be 9% below the efficient level, and a structural shift to the efficient contract improves welfare by nearly 4%.
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Bibliographic InfoPaper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 0909.
Length: 29 pages
Date of creation: Jul 2009
Date of revision: Nov 2009
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Fax: (508) 793-3708
Web page: http://www.holycross.edu/departments/economics/website/
More information through EDIRC
labor supply; unemployment; matching; efficiency wages;
Find related papers by JEL classification:
- J0 - Labor and Demographic Economics - - General
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- 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-2009-08-08 (All new papers)
- NEP-DGE-2009-08-08 (Dynamic General Equilibrium)
- NEP-LAB-2009-08-08 (Labour Economics)
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