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Wage Bargaining with Direct Competition and Heterogeneous Access to Vacancies

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Listed:
  • Adalbert Mayer

    (Washington College)

  • Theodore L. Turocy

    (University of East Anglia)

Abstract

Agents with a richer set of opportunities to trade should be able to demand better terms of trade. For instance, workers who are otherwise equally-qualified may differ in their access to vacancies, e.g. because their social networks are larger or smaller. We present a model of search and matching in which multiple workers may be matched to the same vacancy, and workers compete directly in the wage bargining process. Workers with greater access have a higher dynamic outside option and demand higher wages. They are therefore unsuccessful candidates in some matches; this latter outcome is not possible in existing models based on Nash bargaining to determine wages. In particular, when markets are tight and the expected length of a position is short, workers with better access to opportunities will remain unemployed longer than those with less access.

Suggested Citation

  • Adalbert Mayer & Theodore L. Turocy, 2013. "Wage Bargaining with Direct Competition and Heterogeneous Access to Vacancies," University of East Anglia Applied and Financial Economics Working Paper Series 052, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:aepppr:2012_52
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    References listed on IDEAS

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    1. Calvo-Armengol, Antoni & Zenou, Yves, 2005. "Job matching, social network and word-of-mouth communication," Journal of Urban Economics, Elsevier, vol. 57(3), pages 500-522, May.
    2. Mark Satterthwaite & Artyom Shneyerov, 2007. "Dynamic Matching, Two-Sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," Econometrica, Econometric Society, vol. 75(1), pages 155-200, January.
    3. Fontaine, François, 2008. "Why are similar workers paid differently? the role of social networks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3960-3977, December.
    4. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
    5. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    6. Hobijn, Bart & Sahin, Aysegül, 2009. "Job-finding and separation rates in the OECD," Economics Letters, Elsevier, vol. 104(3), pages 107-111, September.
    7. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-1418, December.
    8. Kultti, Klaus, 2000. "A model of random matching and price formation," European Economic Review, Elsevier, vol. 44(10), pages 1841-1856, December.
    9. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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