Wage Bargaining with Direct Competition and Heterogeneous Access to Vacancies

Adalbert Mayer () and Theodore Turocy

No 52, University of East Anglia Applied and Financial Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK.

Abstract: Agents with a richer set of opportunities to trade should be able to demand better terms of trade. For instance, workers who are otherwise equally-qualified may differ in their access to vacancies, e.g. because their social networks are larger or smaller. We present a model of search and matching in which multiple workers may be matched to the same vacancy, and workers compete directly in the wage bargining process. Workers with greater access have a higher dynamic outside option and demand higher wages. They are therefore unsuccessful candidates in some matches; this latter outcome is not possible in existing models based on Nash bargaining to determine wages. In particular, when markets are tight and the expected length of a position is short, workers with better access to opportunities will remain unemployed longer than those with less access.

Date: 2013-12
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