Wage Bargaining, Labor Turnover, and the Business Cycle: A Model with Asymmetric Information
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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- Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
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- Perry, Motty, 1986. "An Example of Price Formation in Bilateral Situations: A Bargaining Model with Incomplete Information," Econometrica, Econometric Society, vol. 54(2), pages 313-321, March.
- Ehrenberg, Ronald G & Danziger, Leif & San, Gee, 1983. "Cost-of-Living Adjustment Clauses in Union Contracts: A Summary of Results," Journal of Labor Economics, University of Chicago Press, vol. 1(3), pages 215-245, July.
- Barro, Robert J, 1979. "Second Thoughts on Keynesian Economics," American Economic Review, American Economic Association, vol. 69(2), pages 54-59, May.
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