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Wage bargaining with on-the-job search: theory and evidence

Listed author(s):
  • Pierre Cahuc

    (Department of Economics)

  • Fabien Postel-Vinay
  • Jean-Marc Robin

    (UCL Department of Economics)

Most applications of Nash bargaining over wages ignore between-employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on-the-job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on-the-job search, and the workers' bargaining power. We find that between-firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' "reservation wages," defined as out-of-work income. In particular, we detect no significant bargaining power for intermediate- and low-skilled workers, and a modestly positive bargaining power for high-skilled workers.

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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/dc0ckec3fcb29ms9850c12h1p.

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Date of creation: 2006
Publication status: Published in Econometrica, 2006, vol. 74, pp.323-364
Handle: RePEc:spo:wpmain:info:hdl:2441/dc0ckec3fcb29ms9850c12h1p
Contact details of provider: Web page: http://www.sciencespo.fr/

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