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On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework


  • Christopher Flinn
  • James Mabli


We look at the impact of a binding minimum wage on labor market outcomes and welfare distributions in a partial equilibrium model of matching and bargaining in the presence of on-the-job search. We use two different specifications of the Nash bargaining problem. In one, firms engage in a Bertrand competition for the services of an individual, as in Postel-Vinay and Robin (2002). In the other, firms do not engage in such competitions, and the outside option used in bargaining is always the value of unemployed search. We estimate both bargaining specifications using a Method of Simulated Moments estimator applied to data from a recent wave of the Survey of Income and Program Participation. Even though individuals will be paid the minimum wage for a small proportion of their labor market careers, we find significant effects of the minimum wage on the ex ante value of labor market careers, particularly in the case of Bertrand competition between firms. An important futures goal of this research agenda is to develop tests capable of determining which bargaining framework is more consistent with observed patterns of turnover and wage change at the individual level.

Suggested Citation

  • Christopher Flinn & James Mabli, 2008. "On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework," Carlo Alberto Notebooks 91, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:91

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    References listed on IDEAS

    1. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    2. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    3. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
    4. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    5. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
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    Cited by:

    1. Engelhardt, Bryan & Fuller, David L., 2012. "Labor force participation and pair-wise efficient contracts with search and bargaining," Labour Economics, Elsevier, vol. 19(3), pages 388-402.
    2. Christopher Flinn & Ahu Gemici & Steven Laufer, 2017. "Search, Matching, and Training," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 260-297, April.
    3. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and FDI in a two-sector general equilibrium model," MPRA Paper 35564, University Library of Munich, Germany.
    4. Shutao Cao & Enchuan Shao & Pedro Silos, 2010. "Fixed-term and permanent employment contracts: theory and evidence," FRB Atlanta Working Paper 2010-13, Federal Reserve Bank of Atlanta.
    5. Tjaden, Volker & Wellschmied, Felix, 2012. "Exploring the Causes of Frictional Wage Dispersion," IZA Discussion Papers 6299, Institute for the Study of Labor (IZA).
    6. Fernando Borraz & Nicolás Gonzalez Pampillón, 2011. "Assessing the Distributive Impact of More than Doubling the Minimum Wage: The Case of Uruguay," Documentos de Trabajo (working papers) 1711, Department of Economics - dECON.
    7. Kai Liu, 2010. "Wage Risk, On-the-job Search and Partial Insurance," 2010 Meeting Papers 1136, Society for Economic Dynamics.
    8. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2011. "Do Frictions Matter in the Labor Market? Accessions, Separations, and Minimum Wage Effects," Institute for Research on Labor and Employment, Working Paper Series qt4t3342nd, Institute of Industrial Relations, UC Berkeley.
    9. Arindrajit Dube & T. William Lester & Michael Reich, 2016. "Minimum Wage Shocks, Employment Flows, and Labor Market Frictions," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 663-704.
    10. Bartolucci, Cristian, 2012. "Credible threats in a wage bargaining model with on-the-job search," Economics Letters, Elsevier, vol. 117(3), pages 657-659.
    11. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "A quantitative evaluation of payroll tax subsidies for low-wage workers: An equilibrium search approach," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 817-843, April.
    12. Bryan Engelhardt & David L. Fuller, 2009. "Efficient Labor Force Participation with Search and Bargaining," Working Papers 0909, College of the Holy Cross, Department of Economics, revised Nov 2009.
    13. Philipp Eisenhauer & James J. Heckman & Stefano Mosso, 2015. "Estimation Of Dynamic Discrete Choice Models By Maximum Likelihood And The Simulated Method Of Moments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 331-357, May.
    14. repec:bla:rdevec:v:21:y:2017:i:4:p:1081-1112 is not listed on IDEAS
    15. Fernando Borraz & Nicolás González-Pampillón, 2017. "Assessing the distributive effects of minimum wage," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1081-1112, November.
    16. Bartolucci, Cristian, 2012. "Business cycles and wage rigidity," Labour Economics, Elsevier, vol. 19(4), pages 568-583.
    17. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and foreign capital inflow — A two sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(6), pages 2494-2501.
    18. Mecikovsky, Ariel & Wellschmied, Felix, 2016. "Wage Risk, Employment Risk and the Rise in Wage Inequality," IZA Discussion Papers 10451, Institute for the Study of Labor (IZA).
    19. Chaudhuri, Sarbajit & Bandopadhyay, Titas Kumar, 2013. "Job-search and foreign capital inflow — A three-sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 35(C), pages 159-169.
    20. Rasmus Lentz, 2014. "Optimal Employment Contracts with Hidden Search," NBER Working Papers 19988, National Bureau of Economic Research, Inc.
    21. Flabbi, Luca & Leonardi, Marco, 2010. "Sources of earnings inequality: Estimates from an on-the-job search model of the US labor market," European Economic Review, Elsevier, vol. 54(6), pages 832-854, August.

    More about this item


    Minimum wage; On-the-job search; Renegotiation; Matching functions;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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