The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium
When match formation is costly and wage determination is decentralized, privately optimal investments in job and worker quality diverge from socially efficient outcomes. To explore this issue, I consider search equilibrium environments with endogenous quality distributions for jobs and workers. I show that a search equilibrium with decentralized wage setting exhibits excessive relative supplies of inferior jobs and inferior workers. Moreover, there are fundamental tensions between the standard wage-setting condition for an efficient total supply of jobs (and workers) in two-sided search models and the conditions required for efficient mixes of jobs and workers. I also derive the efficient wage structure, contrast its properties to the decentralized wage structure and evaluate the welfare and productivity gains of moving to an efficient wage structure. Numerical exercises show that centralized bargaining between a labor union and an employer confederation over the structure of wages can improve productivity and welfare by compressing job-related wage differentials.
|Date of creation:||Aug 2001|
|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
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dale T. Mortensen, 1982.
"The Matching Process as a Noncooperative Bargaining Game,"
in: The Economics of Information and Uncertainty, pages 233-258
National Bureau of Economic Research, Inc.
- Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Davis, Steven J. & Henrekson, Magnus, 2005.
"Wage-setting institutions as industrial policy,"
Elsevier, vol. 12(3), pages 345-377, June.
- Davis, Steven J. & Henrekson, Magnus, 2000. "Wage-setting Institutions as Industrial Policy," SSE/EFI Working Paper Series in Economics and Finance 352, Stockholm School of Economics, revised 05 Aug 2003.
- Steven J. Davis & Magnus Henrekson, 2000. "Wage-Setting Institutions as Industrial Policy," NBER Working Papers 7502, National Bureau of Economic Research, Inc.
- Henrekson, Magnus & Davis, Steven J., 2000. "Wage-Setting Institutions as Industrial Policy," Working Paper Series 529, Research Institute of Industrial Economics.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8434. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.