Econometrica: Mar 2006, Volume 74, Issue 2

Wage Bargaining with On‐the‐Job Search: Theory and Evidence
p. 323-364

Pierre Cahuc, Fabien Postel‐Vinay, Jean‐Marc Robin

Most applications of Nash bargaining over wages ignore between‐employer competition for labor 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, because it is quantitatively more important than wage bargaining à 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.

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Supplemental Material

Wage Bargaining with On-the-job Search: Theory and Evidence - Supplemented Material: Bargaining in Presence of a Legal Minimum Wage

In this Appendix we consider the existence of a wage floor, Wmin, such that no firm can make a wage offer of less than Wmin at any stage of the bargaining process. For simplicity, we shall work under the assumption that workers are homogeneous conditional on their observed attributes, i.e. we shall assume away any dispersion in the workers? ε?s (and consequently drop the dependence on ε of all functions in the analysis to come). We otherwise take up the concepts and notation of the main text.

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