Fixed or Flexible? Wage Setting in Search Equilibrium
Why do some vacancies offer a posted wage whereas others offer a negotiable wage? The paper endogenizes the choice of wage policy in a search model with heterogeneous workers. In particular, we characterize the circumstances under which there exist an equilibrium where all firms negotiate wages. Generally, we find that a tight labor market favors bargaining over posting, as does large worker heterogeneity. In the equilibrium of our model, labor markets are tighter when workers are more productive, suggesting a reason why wages are more often negotiated for highly paid jobs.
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|Date of creation:||1997|
|Date of revision:|
|Contact details of provider:|| Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.|
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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References listed on IDEAS
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- Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Bester, Helmut, 1994.
"Price commitment in search markets,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 25(1), pages 109-120, September.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991.
"Unemployment: Macroeconomic Performance and the Labour Market,"
Oxford University Press, number 9780198284345, June.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, June.
- Kevin Lang, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 181-202.
- Ellingsen, Tore & Rosen, Åsa, 1994. "Skill or Luck? Search Frictions and Wage Differentials," SSE/EFI Working Paper Series in Economics and Finance 1, Stockholm School of Economics.
- Dale T. Mortensen, 1979.
"The Matching Process as a Non-Cooperative/Bargaining Game,"
384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
- repec:fth:harver:1517 is not listed on IDEAS
- Albrecht, James & Axell, Bo, 1983.
"An Equilibrium Model of Search Unemployment,"
83-10, C.V. Starr Center for Applied Economics, New York University.
- Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
- Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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