The Limited Influence of Unemployment on the Wage Bargain

Robert Hall () and Paul Milgrom

American Economic Review, 2008, vol. 98, issue 4, 1653-74

Abstract: When a job-seeker and an employer meet, find a prospective joint surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may have limited influence. The job-seeker's only credible threat during bargaining is to hold out for a better deal. The employer's threat is to delay bargaining. Consequently, the outcome of the bargain depends on the relative costs of delays to the parties, rather than on the payoffs that result from exiting negotiations. Modeling bargaining in this way makes wages less responsive to unemployment. A stochastic model of the labor market with credible bargaining and reasonable parameter values yields larger employment fluctuations than does the standard Mortensen-Pissarides model. (JEL J22, J23, J31, J64)

JEL-codes: J22 J23 J31 J64 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.4.1653
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Citations: View citations in EconPapers (455)

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Related works:
Working Paper: The Limited Influence of Unemployment on the Wage Bargain (2007)
Working Paper: The Limited Influence of Unemployment on the Wage Bargain (2005)
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