Incomplete Wage Posting

CEMFI Working Paper No. 0203

48 Pages Posted: 30 Oct 2002

See all articles by Claudio Michelacci

Claudio Michelacci

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: July 2002

Abstract

We consider a competitive search model where firms with vacancies choose between posting a wage ex ante and bargaining it with workers ex post. Workers apply for vacancies after observing firms' wage setting decisions, and dffer in some observable but not verifiable qualifications that affect their productivity in the job. Thus posted wages prevent the hold-up problem associated with bargaining but are incomplete since they cannot be contingent on worker qualifications. In contrast, bargained wages are increasing in them and, thus, may serve to entice better workers into the vacancy. We find that when the hold-up problem is mild and workers' heterogeneity is large, firms opt for bargaining. Yet, equilibria with bargaining always fail to maximize aggregate net income and sometimes fail to be constrained Pareto optimal.

Keywords: Search frictions, bargaining, directed search, adverse selection, wage inequality

JEL Classification: J30, J41

Suggested Citation

Michelacci, Claudio and Suarez, Javier, Incomplete Wage Posting (July 2002). CEMFI Working Paper No. 0203, Available at SSRN: https://ssrn.com/abstract=336920 or http://dx.doi.org/10.2139/ssrn.336920

Claudio Michelacci (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 4290 551 (Phone)
+34 91 4291 056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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