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Wage Bargaining, Labor Turnover, and the Business Cycle: A Model with Asymmetric Information

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  • Perry, Motty
  • Solon, Gary

Abstract

This paper presents a wage bargaining model in which the employer and employee are each uncertain about the other's reservation wage. Under specified circumstances, the model's equilibrium is shown to involve unilateral wage setting and inefficient labor turnover. In addition, aggregate demand shocks affect the equilibrium in a way that produces procyclical quits and countercyclical layoffs.These results are obtained without resorting to assumptions of nominal wage rigidity, long-term contracting, or aggregate price misperceptions.
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Suggested Citation

  • Perry, Motty & Solon, Gary, 1985. "Wage Bargaining, Labor Turnover, and the Business Cycle: A Model with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 421-433, October.
    • Handle: RePEc:ucp:jlabec:v:3:y:1985:i:4:p:421-33
    DOI: 10.1086/298063
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    Cited by:

    1. Steven J. Davis & Pawel M. Krolikowski, 2025. "Sticky Wages on the Layoff Margin," American Economic Review, American Economic Association, vol. 115(2), pages 491-524, February.
    2. Al-Azzam, Moh'd & Obeidat, Shatha M., 2025. "Global insights on wage and employee turnover in microfinance," International Review of Economics & Finance, Elsevier, vol. 100(C).
    3. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers 15767, National Bureau of Economic Research, Inc.
    4. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.

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