Fixed or Flexible? Wage Setting in Search Equilibrium
Why do some vacancies offer a posted wage whereas other 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 workers 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:||19 Aug 1997|
|Publication status:||Published in Economica, 2003, pages 233-250.|
|Contact details of provider:|| Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-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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- repec:fth:harver:1517 is not listed on IDEAS
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"An Equilibrium Model of Search Unemployment,"
Journal of Political Economy,
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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.
- 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.
- 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.
- Kevin Lang, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 181-202. Full references (including those not matched with items on IDEAS)
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