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Fixed or Flexible? Wage Setting in Search Equilibrium

  • Ellingsen, Tore

    ()

    (Dept. of Economics, Stockholm School of Economics)

  • Rosén, Åsa

    ()

    (Dept. of Economics, Uppsala University)

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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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 185.

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Length: 22 pages
Date of creation: 19 Aug 1997
Date of revision:
Handle: RePEc:hhs:hastef:0185
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  1. 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.
  2. Albrecht, James & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Papers 83-10, C.V. Starr Center for Applied Economics, New York University.
  3. 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.
  4. Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  6. repec:fth:harver:1517 is not listed on IDEAS
  7. Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February.
  8. Bester, H., 1993. "Price Commitment in Search Markets," Papers 9309, Tilburg - Center for Economic Research.
  9. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  10. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
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