Search with Multilateral Bargaining

Wage determination plays a key role in labor market search models and recent evidence suggests workers' and firms' alternative employment opportunities matter. This paper develops the first search model that, to the best of my knowledge, incorporates multilateral bargaining between multiple firms and multiple workers. Despite superficially differing from the search literature in many dimensions, the framework developed nests much of it as special cases. The question of when decentralized markets deliver efficient levels of unemployment and vacancy creation is then reexamined. With multilateral bargaining too few vacancies are created unless firms have all the bargaining power (can make take-it-or-leave-it offers). However, vacancy creation is nonetheless approximately efficient in local labor markets where people are suitable for many positions and positions are suitable for many people. To the extent that this describes unskilled labor markets, any intervention to encourage vacancy creation might be better targeted elsewhere.