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Preferences for Rigid versus Individualized Wage Setting in Search Economies with Frictions

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  • Tito Boeri
  • Michael Burda

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 labor markets for intermediate skills. The firing friction is necessary for this effect, and reinforces the impact of both turbulence and other labor market institutions on preferences for rigid wages.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 262.

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Date of creation: 2004
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Handle: RePEc:igi:igierp:262

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Cited by:
  1. Brugemann, Bjorn, 2006. "Does Employment Protection Create Its Own Political Support?," Working Papers 20, Yale University, Department of Economics.
  2. Christoffel, Kai & Linzert, Tobias, 2005. "The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics," Working Paper Series 0556, European Central Bank.
  3. Pierre, Gaëlle & Scarpetta, Stefano, 2004. "Employment Regulations through the Eyes of Employers: Do They Matter and How Do Firms Respond to Them?," IZA Discussion Papers 1424, Institute for the Study of Labor (IZA).
  4. Nikolaj Malchow-Møller & James Markusen & Jan Skaksen, 2010. "Labour market institutions, learning and self-employment," Small Business Economics, Springer, vol. 35(1), pages 35-52, July.

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