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On the quantitative importance of wage bargaining models

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  • James S. Costain

Abstract

Four general equilibrium search models are compared quantitatively. The baseline framework is a calibrated macroeconomic model of the US economy designed for a welfare analysis of unemployment insurance policy. The other models make three simple and natural specification changes, regarding tax incidence, monopsony power in wage determination, and the relevant threat point. These specification changes have a major impact on the equilibrium and on the welfare implications of unemployment insurance, partly because search externalities magnify the effects of wage changes. The optimal level of unemployment insurance depends strongly on whether raising benefits has a larger impact on search effort or on hiring expenditure.

Suggested Citation

  • James S. Costain, 1998. "On the quantitative importance of wage bargaining models," Economics Working Papers 262, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:262
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    File URL: https://econ-papers.upf.edu/papers/262.pdf
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    3. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    4. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
    5. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
    6. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    7. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
    8. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
    9. Solon, Gary R, 1985. "Work Incentive Effects of Taxing Unemployment Benefits," Econometrica, Econometric Society, vol. 53(2), pages 295-306, March.
    10. Wolinsky, Asher, 1987. "Matching, search, and bargaining," Journal of Economic Theory, Elsevier, vol. 42(2), pages 311-333, August.
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    12. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
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    15. Giuseppe Bertola & Ricardo J. Caballero, 1994. "Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 435-456.
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    Cited by:

    1. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.

    More about this item

    Keywords

    Wage bargaining; search; matching; unemployment insurance; tax incidence; monopsony; threat point;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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