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Fixed or Flexible? Wage Setting in Search Equilibrium

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Author Info

  • Ellingsen, Tore

    ()
    (Stockholm School of Economics)

  • Rosén, Åsa

    ()
    (SOFI)

Abstract

Why do some vacancies offer a posted wage whereas other offer a negotiable wage? The paper endogenizes the choice of wage policy in a search model with heterogeneous workers. In particular, we characterize the circumstances under which there exist an equilibrium where all firms negotiate wages. Generally, we find that a tight labor market favors bargaining over posting, as does large workers heterogeneity. In the equilibrium of our model, labor markets are tighter when workers are more productive, suggesting a reason why wages are more often negotiated for highly paid jobs.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1997:17.

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Length: 22 pages
Date of creation: 19 Aug 1997
Date of revision:
Publication status: Published in Economica, 2003, pages 233-250.
Handle: RePEc:hhs:uunewp:1997_017

Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Email:
Web page: http://www.nek.uu.se/
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Related research

Keywords: Search; wage offers; bargaining; posting;

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References

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  1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  2. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  3. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  4. Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February.
  6. Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Bester, H., 1993. "Price commitment in search markets," Discussion Paper 1993-9, Tilburg University, Center for Economic Research.
  8. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Albrecht, James W & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Paper Series 99, Research Institute of Industrial Economics.
  10. repec:fth:harver:1517 is not listed on IDEAS
  11. Ellingsen, Tore & Rosen, Åsa, 1994. "Skill or Luck? Search Frictions and Wage Differentials," Working Paper Series in Economics and Finance 1, Stockholm School of Economics.
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