IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Intra-Firm Bargaining and Wage Dynamics: A Model of Asymmetric Learning

Listed author(s):

This paper develops a bargaining model between employers and workers that is driven by asymmetric information between current employers and potential employers. Both the current employer and the worker have the same information regarding the worker's productivity. This information is not available to outside firms which observe only wages. Existing literature on asymmetric information between current and potential employers typically assumes that workers are price takers, and develops job signaling models. In equilibrium, wages are attached to publicly observable characteristics. High and low ability workers in the same job earn the same wages. This result prompts a question: Why are high productivity workers not able to capture a larger portion of the surplus than less productive workers? I develop a wage signaling model in which workers and employers bargain over wages that addresses this question, and analyze how the market learns about employed workers skills. This model generates a semi-separating equilibrium. More able workers compensate their employers by earning lower wages in the first period to elicit higher future offers from outside firms. These workers' wages depend on their actual productivity. Outside firms observe wages and infer these workers' productivity. They then make offers equal to the worker's productivity and the current employer matches the offers. Less able workers for whom it is too costly to reveal ability through wages earn a wage below their productivity in all periods. I then show that this model of bargaining can generate predictions consistent with several regularities in wage patterns of managers within firms. Existing literature which explains empirical findings on wage dynamics in internal labor markets mainly focuses on incentive models or models in which wages are determined in spot markets (JEL J3, C78,D82, D83).

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2002-E27.

in new window

Date of creation: Oct 2002
Handle: RePEc:cmu:gsiawp:-209605104
Contact details of provider: Postal:
Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cmu:gsiawp:-209605104. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.