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Partial commitment in models of on-the-job search with an application to minimum wage spillovers

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  • Axel Gottfries

    (University of Cambridge)

Abstract

This paper studies the role of partial commitment in models with on-the-job search. Commitment is modeled as the frequency at which wages are renegotiated. The formulation nests earlier models in the literature as special cases in which the frequency of renegotiation goes to zero (full commitment) or infinity (no commitment). I show that the equilibrium wage distribution and the bargaining outcomes are unique. The degree of commitment is important for the share of the surplus captured by the worker. With no commitment, the worker value only reflects her bargaining power. With commitment, the worker receives a higher share of the surplus because a higher wage increases the total surplus by increasing the length of the match. The length of the match is more responsive to the agreed wage when the commitment is higher. When the model is calibrated, the values of the model primitives, e.g. the bargaining power of workers and the productivity distribution, differ starkly depending on the assumed degree of commitment. Further, there is only a positive spillover from an increase in the minimum wage if there is a high degree of commitment. Lastly, when the degree of commitment is endogenous, the two corner cases analyzed in the literature only arise under particular parameter values.

Suggested Citation

  • Axel Gottfries, 2018. "Partial commitment in models of on-the-job search with an application to minimum wage spillovers," 2018 Meeting Papers 567, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:567
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    References listed on IDEAS

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    1. Christopher Huckfeldt & Antonella Trigari & Mark Gertler, 2015. "Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires," 2015 Meeting Papers 438, Society for Economic Dynamics.
    2. Christian Moser & Niklas Engbom, 2016. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," 2016 Meeting Papers 72, Society for Economic Dynamics.
    3. Björn Brügemann & Pieter Gautier & Guido Menzio, 2015. "Intra Firm Bargaining and Shapley Values," NBER Working Papers 21508, National Bureau of Economic Research, Inc.
    4. Christopher Flinn & James Mabli & Joseph Mullins, 2017. "Firms' Choices of Wage-Setting Protocols in the Presence of Minimum Wages," Working Papers 2017-070, Human Capital and Economic Opportunity Working Group.
    5. Giuseppe Moscarini & Kaj Thomsson, 2008. "Occupational and Job Mobility in the US," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 807-836, March.
    6. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 535-551.
    7. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, March.
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