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Wage Posting Without Full Commitment

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  • Matthew Doyle

    (Department of Economics, University of Waterloo)

  • Jacob Wong

    (School of Economics, The University of Adelaide)

Abstract

Wage posting models of job search typically assume that firms can commit to paying workers the posted wage. This paper investigates the consequences of relaxing this assumption. Under "downward" commitment firms can commit only to paying at least their advertised wage. We show that wage posting is always an equilibrium, although in special cases other equilibria can exist. Surprisingly, the wage posting equilibrium in our economy is identical to the equilibrium when firms can commit to paying exactly their posted wage. When firms cannot even commit to paying at least their advertised wage, equilibrium exhibits job auctions with wage dispersion which generally are not constrained efficient.

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Bibliographic Info

Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number 08004.

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Date of creation: Aug 2008
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Handle: RePEc:wat:wpaper:08004

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Keywords: directed search; wage posting; job auctions; commitment;

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References

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  1. James Albrecht & Pieter Gautier & Susan Vroman, 2003. "Equilibrium Directed Search with Multiple Applications," Tinbergen Institute Discussion Papers, Tinbergen Institute 03-004/3, Tinbergen Institute, revised 14 Feb 2004.
  2. Gabriele Camera & Cemil Selcuk, 2009. "Price Dispersion with Directed Search," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(6), pages 1193-1224, December.
  3. Peters, Michael, 2000. "Limits of Exact Equilibria for Capacity Constrained Sellers with Costly Search," Journal of Economic Theory, Elsevier, Elsevier, vol. 95(2), pages 139-168, December.
  4. Manolis Galenianos & Philipp Kircher, 2009. "Directed search with multiple job applications," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 29702, London School of Economics and Political Science, LSE Library.
  5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  6. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  7. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
  8. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  9. Manolis Galenianos & Philipp Kircher, 2012. "On The Gameā€Theoretic Foundations Of Competitive Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 1-21, 02.
  10. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, Elsevier, vol. 27(1), pages 106-113, April.
  11. Michelacci, Claudio & Suarez, Javier, 2002. "Incomplete Wage Posting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3658, C.E.P.R. Discussion Papers.
  12. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1425-54, September.
  13. Michael Peters & Sergei Severinov, 1995. "Competition Among Sellers who offer Auctions Instead of Prices," Working Papers, University of Toronto, Department of Economics peters-95-02, University of Toronto, Department of Economics.
  14. Eeckhout, Jan & Kircher, Philipp, 2010. "Sorting versus screening: Search frictions and competing mechanisms," Journal of Economic Theory, Elsevier, Elsevier, vol. 145(4), pages 1354-1385, July.
  15. Matthew Doyle & Jacob Wong, 2008. "Wage Posting Without Full Commitment," School of Economics Working Papers, University of Adelaide, School of Economics 2008-01, University of Adelaide, School of Economics.
  16. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115(5), pages 748-769, October.
  17. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, Elsevier, vol. 111(2), pages 265-276, August.
  18. Philipp Kircher & Jan Eeckhout, 2008. "Prices as Optimal Competitive Sales Mechanisms," 2008 Meeting Papers 504, Society for Economic Dynamics.
  19. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(2), pages 153-174, Spring.
  20. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  21. Adrian Masters, 2005. "Directed Search without Wage Commitment and the Role of Labor Market Institutions," Discussion Papers, University at Albany, SUNY, Department of Economics 05-02, University at Albany, SUNY, Department of Economics.
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Cited by:
  1. Matthew Doyle & Jacob Wong, 2008. "Wage Posting Without Full Commitment," Working Papers, University of Waterloo, Department of Economics 08004, University of Waterloo, Department of Economics.

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