Fixed or Flexible? Wage-setting in Search Equilibrium
Why do some vacancies offer a posted wage whereas others offer a negotiable wage? The paper endogenizes the choice of wage policy in a standard sequential search model with heterogeneous workers. In particular, we identify circumstances such that there exists an equilibrium in which all firms negotiate wages. We find that this equilibrium exists if and only if the labour market is sufficiently tight and worker heterogeneity is sufficiently large. Copyright The London School of Economics and Political Science 2003.
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Volume (Year): 70 (2003)
Issue (Month): 278 (05)
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References listed on IDEAS
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- Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February.
- repec:fth:harver:1517 is not listed on IDEAS
- Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Bester, H., 1993.
"Price Commitment in Search Markets,"
9309, Tilburg - Center for Economic Research.
- Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
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