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Fixed or Flexible? Wage Setting in Search Equilibrium

Tore Ellingsen () and Åsa Rosén

No 1997:17, Working Paper Series from Uppsala University, Department of Economics

Abstract: Why do some vacancies offer a posted wage whereas other offer a negotiable wage? The paper endogenizes the choice of wage policy in a search model with heterogeneous workers. In particular, we characterize the circumstances under which there exist an equilibrium where all firms negotiate wages. Generally, we find that a tight labor market favors bargaining over posting, as does large workers heterogeneity. In the equilibrium of our model, labor markets are tighter when workers are more productive, suggesting a reason why wages are more often negotiated for highly paid jobs.

Keywords: Search; wage offers; bargaining; posting (search for similar items in EconPapers)
JEL-codes: J31 J41 (search for similar items in EconPapers)
Date: 1997-08-19
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Published in Economica, 2003, pages 233-250.

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