The Limited Influence of Unemployment on the Wage Bargain
When a job-seeker and an employer meet, find a prospective surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may be irrelevant. The job-seeker's threat point in the bargain is to delay bargaining, not to terminate bargaining and resume search at other employers. Similarly, the employer's threat point is to delay bargaining, not to terminate it. Consequently, the outcome of the bargain depends on the relative costs of delay to the parties, not on the results of irrational threats to disclaim any bargain. In a model of the labor market that otherwise adopts all of the features of the standard Mortensen-Pissarides model, unemployment is much more sensitive to changes in productivity than in the standard model, because feedback through the wage is absent. We also present models where the wage bargain is in partial contact with conditions in the labor market.
|Date of creation:||Apr 2005|
|Publication status:||published as Hall, Robert E. and Paul R. Milgrom. "The Limited Influence of Unemployment on the Wage Bargain." American Economic Review 98,4 (September 2008): 1653-1674.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Mortensen, Dale & Pissarides, Christopher, 2011.
"Job Creation and Job Destruction in the Theory of Unemployment,"
Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
- Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
- Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
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- A Rosen, 1992. "An Equilibrium Search-Matching Model of Discrimination," CEP Discussion Papers dp0097, Centre for Economic Performance, LSE.
- Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 397-407, August.
- Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," NBER Working Papers 11183, National Bureau of Economic Research, Inc.
- Holden, Steinar, 1997. "Wage Bargaining, Holdout, and Inflation," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 235-255, April.
- Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
- Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March. Full references (including those not matched with items on IDEAS)
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