Wage Bargaining, Labor Turnover, and the Business Cycle: a Model with Asymmetric Information

25 Pages Posted: 4 Jul 2004 Last revised: 20 Sep 2010

See all articles by Motty Perry

Motty Perry

Hebrew University of Jerusalem - Center for the Study of Rationality; Pennsylvania State University, College of the Liberal Arts - Department of Economic

Gary Solon

University of Arizona; National Bureau of Economic Research (NBER)

Date Written: May 1984

Abstract

This paper presents a wage bargaining model in which the employer and employee are each uncertain about the other's reservation wage. Under specified circumstances, the model's equilibrium is shown to involve unilateral wage setting and inefficient labor turnover. In addition, aggregate demand shocks affect the equilibrium in a way that produces procyclical quits and countercyclical layoffs.These results are obtained without resorting to assumptions of nominal wage rigidity, long-term contracting, or aggregate price misperceptions.

Suggested Citation

Perry, Motty and Solon, Gary, Wage Bargaining, Labor Turnover, and the Business Cycle: a Model with Asymmetric Information (May 1984). NBER Working Paper No. w1359. Available at SSRN: https://ssrn.com/abstract=324005

Motty Perry

Hebrew University of Jerusalem - Center for the Study of Rationality ( email )

Feldman Building
Givat-Ram
Jerusalem, 91904
Israel

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Gary Solon (Contact Author)

University of Arizona ( email )

Department of Economics
Eller College of Management
Tucson, AZ 85719
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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