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.
|Date of creation:||19 Aug 1997|
|Date of revision:|
|Contact details of provider:|| Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden|
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References listed on IDEAS
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in: The Economics of Information and Uncertainty, pages 233-258
National Bureau of Economic Research, Inc.
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- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- 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.
- repec:fth:harver:1517 is not listed on IDEAS
- Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
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