Labor Force Participation and Pair-wise Efficient Contracts with Search and Bargaining

David L. Fuller and Bryan Engelhardt ()
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Bryan Engelhardt: College of the Holy Cross, http://academics.holycross.edu/economics-accounting

No 12005, Working Papers from Concordia University, Department of Economics

Abstract: A “constant†wage is pair-wise inefficient in a standard search model when workers endogenously separate from employment. We derive a pair-wise efficient employment contract that involves workers paying a hiring fee (or bond) upon the formation of a match. We estimate the constant wage and pair-wise efficient contract assuming the hiring fee is unobservable, and find evidence to reject the pair-wise efficient contract in favor of the constant wage rule. A counterfactual experiment reveals the current level of labor force participation to be 9.6% below the efficient level, and a structural shift to the pair-wise efficient contract improves welfare by roughly 3.5%.

Keywords: labor supply; unemployment; matching; efficiency wages (search for similar items in EconPapers)
JEL-codes: J0 J41 J64 (search for similar items in EconPapers)
Date: 2010-09-20, Revised 2012-01-20
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http://www.fullerecon.com/efficientLFPv18.pdf (application/pdf)

Related works:
Journal Article: Labor force participation and pair-wise efficient contracts with search and bargaining (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:crd:wpaper:12005

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