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Wage Setting Under Targeted Search

Anton Cheremukhin and Paulina Restrepo-Echavarria

No 2111, Working Papers from Federal Reserve Bank of Dallas

Abstract: When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two-sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs or market tightness and that labor market tightness and relative costs of search play a key role in the optimal choice of the wage-setting mechanism. Finally, we show that bargaining prevalence is positively correlated with wages, residual wage dispersion and labor market tightness, both in the model and in the data.

Keywords: wage posting; bargaining; search and matching; information (search for similar items in EconPapers)
JEL-codes: E24 J31 J64 (search for similar items in EconPapers)
Pages: 38
Date: 2021-08-12
New Economics Papers: this item is included in nep-dge, nep-gth, nep-isf, nep-lma and nep-mac
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DOI: 10.24149/wp2111

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