The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium
AbstractWhen match formation is costly and wage determination is decentralized, privately optimal investments in job and worker quality diverge from socially efficient outcomes. To explore this issue, I consider search equilibrium environments with endogenous quality distributions for jobs and workers. I show that a search equilibrium with decentralized wage setting exhibits excessive relative supplies of inferior jobs and inferior workers. Moreover, there are fundamental tensions between the standard wage-setting condition for an efficient total supply of jobs (and workers) in two-sided search models and the conditions required for efficient mixes of jobs and workers. I also derive the efficient wage structure, contrast its properties to the decentralized wage structure and evaluate the welfare and productivity gains of moving to an efficient wage structure. Numerical exercises show that centralized bargaining between a labor union and an employer confederation over the structure of wages can improve productivity and welfare by compressing job-related wage differentials.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8434.
Date of creation: Aug 2001
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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
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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- Davis, Steven J. & Henrekson, Magnus, 2000.
"Wage-setting Institutions as Industrial Policy,"
Working Paper Series in Economics and Finance
352, Stockholm School of Economics, revised 05 Aug 2003.
- Steven J. Davis & Magnus Henrekson, 2000. "Wage-Setting Institutions as Industrial Policy," NBER Working Papers 7502, National Bureau of Economic Research, Inc.
- Henrekson, Magnus & Davis, Steven J., 2000. "Wage-Setting Institutions as Industrial Policy," Working Paper Series 529, Research Institute of Industrial Economics.
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