Partial commitment in models of on-the-job search with an application to minimum wage spillovers

Axel Gottfries
Additional contact information
Axel Gottfries: University of Cambridge

No 567, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the role of partial commitment in models with on-the-job search. Commitment is modeled as the frequency at which wages are renegotiated. The formulation nests earlier models in the literature as special cases in which the frequency of renegotiation goes to zero (full commitment) or infinity (no commitment). I show that the equilibrium wage distribution and the bargaining outcomes are unique. The degree of commitment is important for the share of the surplus captured by the worker. With no commitment, the worker value only reflects her bargaining power. With commitment, the worker receives a higher share of the surplus because a higher wage increases the total surplus by increasing the length of the match. The length of the match is more responsive to the agreed wage when the commitment is higher. When the model is calibrated, the values of the model primitives, e.g. the bargaining power of workers and the productivity distribution, differ starkly depending on the assumed degree of commitment. Further, there is only a positive spillover from an increase in the minimum wage if there is a high degree of commitment. Lastly, when the degree of commitment is endogenous, the two corner cases analyzed in the literature only arise under particular parameter values.

Date: 2018
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2018/paper_567.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:567

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().