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

See all articles by Tore Ellingsen

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Asa Rosen

Stockholm University - Swedish Institute for Social Research (SOFI); University of Oslo

Date Written: August 1997

Abstract

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

Ellingsen, Tore and Rosen, Asa and Rosen, Asa, Fixed or Flexible?: Wage Setting in Search Equilibrium (August 1997). Stockholm School of Economics Working Papers in Economics and Finance No. 185, Available at SSRN: https://ssrn.com/abstract=62686 or http://dx.doi.org/10.2139/ssrn.62686

Tore Ellingsen (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Asa Rosen

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

SE-106 91 Stockholm
Sweden
+46 8 163 641 (Phone)
+46 8 754 670 (Fax)

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

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