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Preferences for Rigid Versus Individualized Wage Setting

Author

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  • Burda, Michael
  • Boeri, Tito

Abstract

Firing frictions and renegotiation costs affect worker and firm preferences for rigid wages versus individualized Nash bargaining in a standard model of equilibrium unemployment, in which workers vary by observable skill. Rigid wages permit savings on renegotiation costs and prevent workers from exploiting the firing friction. For standard calibrations, the model can account for political support for wage rigidity by both workers and firms, especially in labour markets for intermediate skills. The firing friction is necessary for this effect, and reinforces the impact of both turbulence and other labour market institutions on preferences for rigid wages.

Suggested Citation

  • Burda, Michael & Boeri, Tito, 2004. "Preferences for Rigid Versus Individualized Wage Setting," CEPR Discussion Papers 4444, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4444
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    Citations

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    Cited by:

    1. Nikolaj Malchow-Møller & James Markusen & Jan Skaksen, 2010. "Labour market institutions, learning and self-employment," Small Business Economics, Springer, vol. 35(1), pages 35-52, July.
    2. Pierre, Gaelle & Scarpetta, Stefano, 2004. "Employment regulations through the eyes of employers - do they matter and how do firms respond to them?," Policy Research Working Paper Series 3463, The World Bank.
    3. Björn Brügemann, 2012. "Does Employment Protection Create Its Own Political Support?," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 369-416, April.
    4. Piccirilli, Giulio, 2015. "On the impact of firing costs under different wage setting regimes," Research in Economics, Elsevier, vol. 69(1), pages 86-99.

    More about this item

    Keywords

    Wage rigidities; Job protection; Firing taxes; Renegotiation costs; Equilibrium unemployment;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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