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On the quantitative importance of wage bargaining models

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  • James S. Costain

Abstract

Four general equilibrium search models are compared quantitatively. The baseline framework is a calibrated macroeconomic model of the US economy designed for a welfare analysis of unemployment insurance policy. The other models make three simple and natural specification changes, regarding tax incidence, monopsony power in wage determination, and the relevant threat point. These specification changes have a major impact on the equilibrium and on the welfare implications of unemployment insurance, partly because search externalities magnify the effects of wage changes. The optimal level of unemployment insurance depends strongly on whether raising benefits has a larger impact on search effort or on hiring expenditure.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 262.

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Date of creation: Jan 1998
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Handle: RePEc:upf:upfgen:262

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Web page: http://www.econ.upf.edu/

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Keywords: Wage bargaining; search; matching; unemployment insurance; tax incidence; monopsony; threat point;

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References

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  1. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 97-109, January.
  3. Bertola, Giuseppe & Caballero, Ricardo J, 1994. "Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 435-56, July.
  4. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, Econometric Society, vol. 53(5), pages 1133-50, September.
  5. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 87(1), pages 192-205, March.
  6. Wolinsky, Asher, 1987. "Matching, search, and bargaining," Journal of Economic Theory, Elsevier, Elsevier, vol. 42(2), pages 311-333, August.
  7. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 195-222, March.
  8. Solon, Gary R, 1985. "Work Incentive Effects of Taxing Unemployment Benefits," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 295-306, March.
  9. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 757-82, July.
  10. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  11. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  12. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March.
  13. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  14. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  15. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
  16. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 243, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 52(6), pages 1351-64, November.
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Cited by:
  1. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 243, Department of Economics and Business, Universitat Pompeu Fabra.

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