Multi-Levels Bargaining and Efficiency in Search Economies (original) (raw)

Wage Bargaining with On-the-Job Search: Theory and Evidence

Econometrica, 2006

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 a 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.

Wage Bargaining with On-the-job Search: A Structural Econometric Model

2002

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. In particular, we detect no significant bargaining power for unskilled workers. However, inter-industry differentials are mainly due to differences in productivity, and bargaining power, in the case of skilled workers.

Efficient Labor Force Participation with Search and Bargaining

A fixed wage is inefficient in a standard search model when workers endogenously separate from employment. We derive an efficient employment contract that involves agents paying a hiring fee (or bond) upon the formation of a match. We estimate the fixed wage and efficient contract assuming the hiring fee is unobservable, and find evidence to reject the efficient contract in favor of the fixed wage rule. A counterfactual experiment reveals the current level of labor force participation to be 9% below the efficient level, and a structural shift to the efficient contract improves welfare by nearly 4%.

Collective versus decentralized wage bargaining and the efficient allocation of resources

Labour Economics, 2014

In a search model with two sided heterogeneity and on-the-job search, we compare collective bargaining agreements (CBA) with a decentralized bargaining outcome case. Under CBA, a union chooses a pay-scale schedule and the firm can select a wage from this pay scale after observing match quality. An advantage of collective bargaining agreements is that search and business-stealing externalities can be internalized. A disadvantage is that it takes more time before an optimal allocation is reached. What the most desirable system is, depends on worker bargaing power (β) and the relative efficiency of on-versus off-the job search. We find both for the Netherlands and the US that as long as β lies between 0.1 and 0.7, CBA is less desirable. * We thank NWO and the Dutch ministry of social affairs for a research grant.

Does Industrial Composition Matter for Wages? A Test of Search and Bargaining Theory

Econometrica, 2012

Does switching the composition of jobs between low-paying and high-paying industries have important effects on wages in other sectors? In this paper, we build on search and bargaining theory to clarify a key general equilibrium channel through which changes in industrial composition could have substantial effects on wages in all sectors. In this class of models, wage determination takes the form of a social interaction problem and we illustrate how the implied sectoral linkages can be empirically explored using U.S. Census data. We find that sector-level wages interact as implied by the model and that the predicted general equilibrium effects are present and substantial. We interpret our results as highlighting the relevance of search and bargaining theory for understanding the determination of wages and argue that the results provide support for the view that industrial composition is important for understanding wage outcomes.

A Search Model in a Segmented Labour Market: the Odd Role of Unions

Assuming random matching productivity, we present a search equilibrium model where each match ends in a vacancy, in a temporary job or in a permanent job. Centralized bargaining sets the wage rate of permanent workers whereas rms decide unilaterally the wage rate of temporary workers. In this segmented labour market: a) the wage setting function can be downward sloping; b) higher union bargaining power leads to higher wage and higher unemployment; c) average worker productivity shows a maximum with respect to union bargaining power.

Efficiency wages and union–firm bargaining

Economics Letters, 2000

This paper combines the efficiency wage and union-firm bargaining approaches to wage determination to produce a unified model that leads to higher wages, confirming an original insight of Summers (Am. Econom. Rev. 78 (1988) 383). Increases in monopoly power on the goods market also have a stronger impact on wages when there are efficiency wage effects, but the proportional effect of bargaining and market power on the wage is independent of the proportional effect of efficiency wages. We also find that efficiency wage effects alter the form of the labour demand curve to make it backward bending.

The Effect of Search Frictions on Wages

2003

Labor market theories that allow for search frictions make marked predictions on the effect of the degree of frictions on wages. Often, the effect is predicted to be negative. Despite the popularity of these theories, this has never been tested. We perform tests with matched worker-firm data. We effectively compare different markets with different degrees of frictions and different market outcomes. The worker data are informative on individual wages and labor market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labor productivity. The matched data allow for an assessment of the skill composition in different markets. Together this allows us to investigate how the mean difference between labor productivity and wages in a market depends on the degree of frictions and other determinants. Using within-market variation, we also investigate the extent of (and explanations for) positive assortative matching. We perform separate analyses for The Netherlands and Denmark.