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Wage Offers and On-the-job Search

Author

Listed:
  • Tristan Potter

    (Drexel University)

  • Dan Bernhardt

    (University of Illinois)

Abstract

We study the wage-setting problem of an employer with private information about demand for its product when workers can engage in costly on-the-job search. Employers understand that low wage offers may convey bad news that induces workers to search. The unique perfect sequential equilibrium wage strategy is characterized by: (i) pooling by intermediate-revenue employers on a common wage that just deters search; (ii) discontinuously lower revealing offers by low-revenue employers for whom the benefit of deterring search fails to warrant the required high pooling wage; and (iii) high revealing offers by high-revenue employers seeking to deter aggressive poachers.

Suggested Citation

  • Tristan Potter & Dan Bernhardt, 2018. "Wage Offers and On-the-job Search," School of Economics Working Paper Series 2018-7, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2018_007
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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