Wage Bargaining with On-the-Job Search: Theory and Evidence
National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA); French National Center for Scientific Research (CNRS); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
University of Bristol; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); Centre for Structural Econometrics (CSE)
Ecole Normale Superieure (ENS) - Laboratoire d'Economie Theorique et Appliquee (LEA); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); National Institute for Agricultural Research (INRA); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
CEPR Discussion Paper No. 4154
The Nash wage bargaining model is ubiquitous in modern labour economics. Yet most applications of this model ignore inter-employer competition for labour services and attribute all of the workers' rent to their bargaining power. In this Paper, we write and estimate an equilibrium model with strategic wage bargaining and on-the-job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on-the-job search, and the workers' bargaining power. We find that between-firm competition matters a lot in the determination of wages, as it is quantitatively more important than wage bargaining a la Nash in raising wages above the workers' 'reservation wages', defined as out-of-work income. In particular, we detect no significant bargaining power for intermediate- and low-skilled workers, and a modestly positive bargaining power for high-skilled workers. In addition, the Paper provides some empirical information on the nature of sorting of workers by firms.
Number of Pages in PDF File: 65
Keywords: Search frictions, structural estimation, wage bargaining, labour market competition
JEL Classification: J31, J41, J64working papers series
Date posted: January 28, 2004
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