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Firms' Choices of Wage-Setting Protocols in the Presence of Minimum Wages
TLDR
In this article, the authors study the formation of wages in a frictional search market where firms can choose either to bargain with workers or post non-negotiable wage offers, and quantitatively examine the model's unique implications for efficiency, wage dispersion, and worker welfare by estimating it using data on the wages and employment spells of low-skill workers in the United States.Abstract:
We study the formation of wages in a frictional search market where firms can choose either to bargain with workers or post non-negotiable wage offers. Workers can secure wage increases for themselves by engaging in on-the-job search and either moving to firms that offer higher wages or, when possible, leveraging an outside offer into a higher wage at the current firm. We characterize the optimal wage posting strategy of non-negotiating firms and how this decision is influenced by the presence of renegotiating firms. We quantitatively examine the model's unique implications for efficiency, wage dispersion, and worker welfare by estimating it using data on the wages and employment spells of low-skill workers in the United States. In the estimated steady state of the model, we find that more than 10% of job acceptance decisions made while on the job are socially sub-optimal. We also find that, relative to a benchmark case without renegotiation, the presence of even a small number of these firms increases the wage dispersion attributable to search frictions, deflates wages, and reduces worker welfare. Moving to a general equilibrium setting, we use the estimated model to study the impact of a minimum wage increase on firm bargaining strategies and worker outcomes. Our key finding is that binding minimum wages lead to an increase in the equilibrium fraction of renegotiating firms which, relative to a counterfactual in which this fraction is fixed, significantly dampens the reduction in wage dispersion and gains in worker welfare that can typically be achieved with moderate minimum wage increases. Indeed, the presence of endogenous bargaining strategies reverses the sign of the average welfare effect of a $15 minimum wage from positive to negative.read more
Citations
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Frictional Wage Dispersion in Search Models : A Quantitative Assessment, Working Paper 06-07
TL;DR: This article showed that standard search and matching models of equilibrium unemployment, once properly calibrated, can generate only a small amount of frictional wage dispersion, i.e., wage differentials among ex-ante similar workers induced purely by search frictions.
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To Match or Not To Match ? Optimal Wage Policy with Endogenous Worker search Intensity
TL;DR: In this paper, the authors consider an equilibrium search model with on-the-job search where firms set wages and show that if workers are able to vary their search intensity, then this ''offer-matching'' policy runs into a moral hazard problem.
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Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies
TL;DR: In this article, the authors provide new estimates of the separations elasticity, a proximate determinant of the labor supply facing a firm with respect to hourly wage, using matched Oregon employer-employee data.
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Labor Market Search, Informality and Schooling Investments
TL;DR: In this paper, a search and matching model where firms and workers are allowed to form matches (jobs) that can be formal or informal was developed, where workers optimally choose the level of schooling acquired before entering the labor market and whether to search for a job as unemployed or as self-employed.
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Labor Monopsony and the Limits of the Law
Suresh Naidu,Eric A. Posner +1 more
TL;DR: This article argued that a significant degree of labor market power is "frictional", that is, without artificial barriers to entry or excessive concentration of employment, and that if monopsony is pervasive under conditions of laissez-faire, antitrust is likely to play only a partial role in remedying it.
References
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Journal ArticleDOI
Job Creation and Job Destruction in the Theory of Unemployment
TL;DR: In this paper, a job-specific shock process in the matching model of unemployment with non-cooperative wage behavior is modeled and the authors obtain endogenous job creation and job destruction processes and study their properties.
Book
The theory of functions
TL;DR: Alfaro et al. as mentioned in this paper conservado en la Biblioteca del Campus de Mostoles de la Universidad Rey Juan Carlos (sign. 517.5 TIT THE).
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Looking into the Black Box: A Survey of the Matching Function
TL;DR: This paper surveys the microfoundations, empirical evidence, and estimation issues underlying the aggregate matching function and discusses spatial aggregation issues, and implications of on-the-job search and of the timing of stocks and flows for estimated matching functions.
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Wage Differentials, Employer Size, and Unemployment
TL;DR: In this article, the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a spectrum of workers search by sequentially sampling from the set of offers is characterized.
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Equilibrium Wage Dispersion with Worker and Employer Heterogeneity
TL;DR: In this article, an equilibrium search model with on-the-job-search is presented, where firms make take-it-or-leave-it wage offers to workers conditional on their characteristics and they can respond to the outside job offers received by their employees.