Core Stability and Core Selection in a Decentralized Labor Matching Market

Heinrich H. Nax and Bary Pradelski
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Heinrich H. Nax: Department of Humanities, Social and Political Sciences, ETH Zürich, Clausiusstr. 37, Zürich 8092, Switzerland

Games, 2016, vol. 7, issue 2, 1-16

Abstract: We propose a dynamic model of decentralized many-to-one matching in the context of a competitive labor market. Through wage offers and wage demands, firms compete over workers and workers compete over jobs. Firms make hire-and-fire decisions dependent on the wages of their own workers and on the alternative workers available on the job market. Workers bargain for better jobs; either individually or collectively as unions, adjusting wage demands upward/downward depending on whether they are currently employed/unemployed. We show that such a process is absorbed into the core with probability one in finite time. Moreover, within the core, allocations are selected that are characterized by surplus splitting according to a bargaining solution such that ( i ) firms and workforce share total revenue according to relative bargaining strengths, and ( i i ) workers receive equal workforce shares above their individual outside options. These results bridge empirical evidence and provide a rich set of testable predictions.

Keywords: cooperative games; core; evolutionary games; matching; generalized Nash bargaining solution; C71; C73; C78; D83 (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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