Workers as Partners: a Theory of Responsible Firms in Labor Markets

We study responsible firms that internalize incumbent-worker surplus in frictional labor markets. In a firm-level benchmark, responsibility creates an endogenous wedge in the effective marginal cost of labor—akin to a hiring subsidy in the firm's first-order conditions—so it changes wage and vacancy incentives rather than only redistributing rents. The wedge is largest when outside options are weak and separations are rare, implying larger responsible wage premia in low-mobility environments and pointing to a countercyclical role for responsible wage setting. In a wage-posting model with on-the-job search, responsible firms occupy the upper tail of thewage distribution and can generate a segmented high-wage sector. In a DMP model with bargaining and endogenous tightness, responsible governance raises the value of unemployment and spills over to wages at profit-maximizing firms.