Efficient Labor Force Participation with Search and Bargaining

Bryan Engelhardt and David Fuller

No 909, Working Papers from College of the Holy Cross, Department of Economics

Abstract: 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%.

Keywords: labor supply; unemployment; matching; efficiency wages (search for similar items in EconPapers)
JEL-codes: J0 J41 J64 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-07, Revised 2009-11
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://hcapps.holycross.edu/hcs/RePEc/hcx/HC0909- ... ller_LaborSearch.pdf Revised version, November 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:hcx:wpaper:0909

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