Wage Bargaining with On-The-Job Search: Theory and Evidence

Pierre Cahuc, Fabien Postel-Vinay () and Jean-Marc Robin

No 4154, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Nash wage bargaining model is ubiquitous in modern labour economics. Yet most applications of this model ignore inter-employer competition for labour services and attribute all of the workers’ rent to their bargaining power. In this Paper, we write and estimate an equilibrium model with strategic wage bargaining and on-the-job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on-the-job search, and the workers’ bargaining power. We find that between-firm competition matters a lot in the determination of wages, as it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers’ ‘reservation wages’, defined as out-of-work income. In particular, we detect no significant bargaining power for intermediate- and low-skilled workers, and a modestly positive bargaining power for high-skilled workers. In addition, the Paper provides some empirical information on the nature of sorting of workers by firms.

Keywords: labour market competition; search frictions; structural estimation; wage bargaining (search for similar items in EconPapers)
JEL-codes: J31 J41 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: Written
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Related works:
Working Paper: Wage bargaining with on-the-job search: theory and evidence (2003)
Journal Article: Wage Bargaining with On-the-Job Search: Theory and Evidence (2006)
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