Directed Search without Wage Commitment and the Role of Labor Market Institutions

Adrian Masters

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: An urn-ball matching model of directed search is analyzed in which the usual assumption of commitment to posted wages is dropped. One-on-one matches lead to a Nash bargained wage but when multiple applicants arrive competition drives the workers down to their continuation value. A minimum wage can act as a commitment device when (as in the USA) willful underpayment carries a stiffer penalty than "inadvertetn underpayment. The theory sheds new light on why firms appear to voluntarily bind themselves into paying higher wages than they would otherwise pay. Robustness to various sources of heterogeneity is considered

Date: 2005
New Economics Papers: this item is included in nep-dge and nep-lab
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