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Directed Search without Wage Commitment and the Role of Labor Market Institutions

  • Adrian Masters

An urn-ball matching model of directed search is analyzed in which the usual assumption of commitment to posted wages is dropped. One-on-one matches lead to a Nash bargained wage but when multiple applicants arrive competition drives the workers down to their continuation value. A minimum wage can act as a commitment device when (as in the USA) willful underpayment carries a stiffer penalty than "inadvertetn underpayment. The theory sheds new light on why firms appear to voluntarily bind themselves into paying higher wages than they would otherwise pay. Robustness to various sources of heterogeneity is considered

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File URL: http://www.albany.edu/economics/research/workingp/2005/commitment.pdf
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 05-02.

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Date of creation: 2005
Date of revision:
Handle: RePEc:nya:albaec:05-02
Contact details of provider: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

Order Information: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Web: http://www.albany.edu/economics/research/workingp/index.shtml Email:


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  1. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  2. Adrian M. Masters, . "Wage Posting in Two-sided Search and the Minimum Wage," Economics Discussion Papers 457, University of Essex, Department of Economics.
  3. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  4. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  5. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
  6. Moen, Espen R, 2002. "Do Good Workers Hurt Bad Workers - or is it the Other Way Around?," CEPR Discussion Papers 3471, C.E.P.R. Discussion Papers.
  7. James Albrecht & Pieter Gautier, 2004. "Equilibrium Directed Search with Multiple Applications," Econometric Society 2004 Latin American Meetings 330, Econometric Society.
  8. Orley Ashenfelter & Robert Smith, 1977. "Compliance with the Minimum Wage Law," Working Papers 478, Princeton University, Department of Economics, Industrial Relations Section..
  9. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  10. B. Petrongolo & Z. Eckstein & S. Ge, 2005. "Minimum Wage and Compliance in a Model of Search On-the-Job," 2005 Meeting Papers 76, Society for Economic Dynamics.
  11. John Kennes & Benoit Julien & Ian King, 2002. "The Mortensen Rule and Efficient Coordination Unemployment," Macroeconomics 0206001, EconWPA.
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