Minimally Altruistic Wages and Unemployment in a Matching Model

Julio Rotemberg

No 13755, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a model in which firms recruit both unemployed and employed workers by posting vacancies. Firms act monopsonistically and set wages to retain their existing workers as well as to attract new ones. The model differs from Burdett and Mortensen (1998) in that its assumptions ensure that there is an equilibrium where all firms pay the same wage. The paper analyzes the response of this wage to exogenous changes in the marginal revenue product of labor. The paper finds parameters for which the response of wages is modest relative to the response of employment, as appears to be the case in U.S. data and shows that the insistence by workers that firms act with a minimal level of altruism can be a source of dampened wage responses. The paper also considers a setting where this minimal level of altruism is subject to fluctuations and shows that, for certain parameters, the model can explain both the standard deviations of employment and wages and the correlation between these two series over time.

JEL-codes: D64 E24 J30 J64 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Note: EFG LS ME
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Citations: View citations in EconPapers (8)

Published as Rotemberg, Julio J., 2008. "Minimally altruistic wages and unemployment in a matching model with monopsony," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S97-S110, October.

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Working Paper: Minimally altruistic wages and unemployment in a matching model (2007)
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