Fixed or Flexible?: Wage Setting in Search Equilibrium
Stockholm School of Economics Working Papers in Economics and Finance No. 185
22 Pages Posted: 15 Mar 1998
Date Written: August 1997
Why do some vacancies offer a posted wage whereas others offer a negotiable wage? The paper endogenizes the choice of wage policy in a search model with heterogeneous workers. In particular, we characterize the circumstances under which there exists an equilibrium where all firms negotiate wages. Generally, we find that a tight labor market favors bargaining over posting, as does large worker heterogeneity. In the equilibrium of our model, labor markets are tighter when workers are more productive, suggesting a reason why wages are more often negotiated for highly paid jobs.
JEL Classification: J31, J41
Suggested Citation: Suggested Citation