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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)

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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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Publisher 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

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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
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Web page: http://www.nek.uu.se/
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Related research
Keywords: Search; wage offers; bargaining; posting;

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
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. repec:fth:harver:1517 is not listed on IDEAS
  2. Bester, Helmut, 1994. "Price commitment in search markets," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 109-120, September. [Downloadable!] (restricted)
    Other versions:
  3. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-40, October. [Downloadable!] (restricted)
    Other versions:
  5. Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February. [Downloadable!] (restricted)
  6. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 217-27, April. [Downloadable!] (restricted)
  7. 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. [Downloadable!]
  8. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  9. Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  10. 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. [Downloadable!]
Full references

Cited by:
(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. Gerard J. van den Berg, 1999. "Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies," Tinbergen Institute Discussion Papers 99-085/3, Tinbergen Institute. [Downloadable!]
  2. Camera, G. & Delacroix, A., 2001. "Bargaining or Price Posting?," Purdue University Economics Working Papers 1147, Purdue University, Department of Economics. [Downloadable!]
  3. Michaelis, Jochen & Birk, Angela, 2004. "Employment and Growth Effects of Tax Reforms," Discussion Paper Series 26275, Hamburg Institute of International Economics. [Downloadable!]
    Other versions:
  4. A. Masters & A. Muthoo, 2003. "Ex Ante Price Commitment with Renegotiation in a Dynamic Market," Economics Discussion Papers 555, University of Essex, Department of Economics. [Downloadable!]
  5. Michelacci, Claudio & Suarez, Javier, 2002. "Incomplete Wage Posting," CEPR Discussion Papers 3658, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Berg, Gerard J. van den, 1999. "Multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies," Serie Research Memoranda 0044, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
    Other versions:
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