Scandinavian Working Papers in Economics
Working Paper Series,
Uppsala University, Department of Economics
No 1997:17: Fixed or Flexible? Wage Setting in Search Equilibrium
Tore Ellingsen () and Åsa Rosén ()
Additional contact information
Tore Ellingsen: Stockholm School of Economics, Postal: Department of Economics, Box 6501, SE-113 83 Stockholm, Sweden
Åsa Rosén: SOFI, Postal: Stockholm University, SE-106 91 Stockholm, Sweden
Abstract: Why do some vacancies offer a posted wage whereas other offer a negotiable wage? The paper endogenizes the choice of wage policy in a search model with heterogeneous workers. In particular, we characterize the circumstances under which there exist an equilibrium where all firms negotiate wages. Generally, we find that a tight labor market favors bargaining over posting, as does large workers heterogeneity. In the equilibrium of our model, labor markets are tighter when workers are more productive, suggesting a reason why wages are more often negotiated for highly paid jobs.
Keywords: Search; wage offers; bargaining; posting
22 pages, August 19, 1997
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