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Fixed or Flexible? Wage Setting in Search Equilibrium

Author

Listed:
  • Ellingsen, Tore

    (Stockholm School of Economics)

  • Rosén, Åsa

    (SOFI)

Abstract

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.

Suggested Citation

  • Ellingsen, Tore & Rosén, Åsa, 1997. "Fixed or Flexible? Wage Setting in Search Equilibrium," Working Paper Series 1997:17, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:1997_017
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    Cited by:

    1. Rocheteau, Guillaume, 2001. "Equilibrium unemployment and wage formation with matching frictions and worker moral hazard," Labour Economics, Elsevier, vol. 8(1), pages 75-102, January.
    2. Masters, Adrian & Muthoo, Abhinay, 2003. "Ex Ante Price Commitment with Renegotiation in a Dynamic Market," Economics Discussion Papers 8861, University of Essex, Department of Economics.
    3. Stefano Banfi & Benjamín Villena-Roldán, 2019. "Do High-Wage Jobs Attract More Applicants? Directed Search Evidence from the Online Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 715-746.
    4. Strand, Jon, 2000. "Wage bargaining and turnover costs with heterogeneous labor and asymmetric information1," Labour Economics, Elsevier, vol. 7(1), pages 95-116, January.
    5. Stephen Machin & Alan Manning, 2002. "The Structure of Wages in What Should be a Competitive Labour Market," CEP Discussion Papers dp0532, Centre for Economic Performance, LSE.
    6. Rocheteau, Guillaume, 2002. "Working time regulation in a search economy with worker moral hazard," Journal of Public Economics, Elsevier, vol. 84(3), pages 387-425, June.
    7. Hermann Gartner & Christian Holzner, 2015. "Wage Posting as a Positive Selection Device: Theory and Empirical Evidence," CESifo Working Paper Series 5494, CESifo.
    8. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 11, pages 973-1041, Elsevier.
    9. Michaelis, Jochen & Birk, Angela, 2006. "Employment- and growth effects of tax reforms," Economic Modelling, Elsevier, vol. 23(6), pages 909-925, December.
    10. Bengtsson, Niklas, 2011. "Regulation Failure and CO2-emissions: An Experimental Investigation of the Cape Town Taxi Market," Working Paper Series, Center for Labor Studies 2011:13, Uppsala University, Department of Economics, revised 12 Aug 2013.
    11. Strand, J., 1998. "Bargaining Versus Efficiency Wages in a Dynamic Labor Market: A Synthesis," Memorandum 22/1998, Oslo University, Department of Economics.
    12. Claudio Michelacci & Javier Suarez, 2006. "Incomplete Wage Posting," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1098-1123, December.
    13. Strand, Jon, 2002. "Wage bargaining and turnover costs with heterogenous labor and perfect history screening," European Economic Review, Elsevier, vol. 46(7), pages 1209-1227, July.
    14. Camera, G. & Delacroix, A., 2001. "Bargaining or Price Posting?," Purdue University Economics Working Papers 1147, Purdue University, Department of Economics.

    More about this item

    Keywords

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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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